Section 58 Replaces 44AD, 44ADA: What Freelancers and Remote Professionals Need to Know

From TY 2026-27, Sections 44AD, 44ADA no longer exist. These have been merged into Section 58 of Income Tax Act 2025. For most freelancers and remote professionals, the core concept is unchanged: declare 50% of gross receipts, skip the books, file ITR-3 or ITR-4. But three major changes make Section 58 different from before and you have to consider them before you file.

What is Section 58 and what exactly did it replace?

Section 58 is new presumptive taxation provision under Income Tax Act, 2025.

Under the Income-tax Act, 1961, presumptive taxation was split across three sections:

• Section 44AD: For Small businesses
• Section 44AE: For Goods carriage operators used
• Section 44ADA: For Specified professionals

Section 58 brings all three into one table.

Section 58 applies from TY 2026-27 (From 1 April 2026 to 31 March 2027) and it falls under new Income Tax Act.

AY 2026-27 filings relate to income of FY 2025-26. Those returns remain under the Income Tax Act, 1961. A freelancer filing for FY 2025-26 will still use Section 44ADA where eligible. This is the Income tax return that you will be filing in 2026.

For the income tax returns that you will file in 2027 and beyond, Section 58 will apply.

The good thing is that the main concept remains the same. Some terms and conditions need review.

Does Section 58 apply to you as a freelancer or remote professional?

For freelancers and remote developers, Section 58, Sl. No. 3 is the relevant category. It replaces old Section 44ADA and applies to specified professionals.

Who qualifies (same as before)?

You qualify under Section 58, Sl. No. 3 if you are:

• a resident individual or resident firm, other than LLP
• engaged in a specified profession under Section 62(4)
• earning gross receipts up to ₹50 lakh
• earning gross receipts up to ₹75 lakh where cash receipts do not exceed 5%

Specified professions include legal, medical, engineering, architecture, accountancy, technical consultancy, interior decoration and CBDT-notified professions.

Information technology was notified as a specified profession by CBDT Notification S.O. 385(E) dated 4 May 2001. Software development, IT consulting, implementation, testing, cloud services, DevOps, cybersecurity and technology architecture services should be under this category based on the contract and invoice description.

Now, information technology is directly covered under the list of notified professions under Section 62(4) of the Income Tax Act 2025.

This has ended confusion for freelancers who were unaware of the notification S.O 385(E).

Who does not qualify?

Section 58, Sl. No. 3 does not apply to:

• LLPs
• companies and OPCs
• professionals with gross receipts above ₹75 lakh

Commission, brokerage, referral income and agency income need separate treatment. They should not be merged with professional receipts under Sl. No. 3.

Digital receipts and ₹75 lakh limit

The ₹75 lakh limit applies when cash and crypto receipts do not exceed 5% of gross receipts.

Receipts through wire transfer, SWIFT, Wise, Payoneer, Deel and bank transfer support the digital receipt condition when credited through banking or online channels.

Under Section 58(9), a non-account-payee cheque or non-account-payee bank draft is treated as cash.

When does Sl. No. 1, old 44AD route, apply?

Section 58, Sl. No. 1 applies to eligible businesses, not specified professions.

It applies to a resident individual, HUF or firm other than LLP. It does not apply to LLPs, companies or OPCs. The turnover limit is ₹2 crore. It becomes ₹3 crore where cash receipts do not exceed 5%.

The presumptive rate is:

• 6% for receipts through specified banking or online mode
• 8% for other receipts

For remote IT professionals, Sl. No. 3 is the starting point when income comes from software development, IT consulting or technology services. Sl. No. 1 applies only where the activity is business and not a specified profession.

Key Section 58 changes that freelancers and remote software developers need to know

Change 1: Any commission or agency income disqualifies you from Section 58 entirely

Commission, brokerage, referral fees or agency income should not be mixed with professional income receipts under Section 58, Sl. No. 3.

For example, a remote developer who earns ₹55 lakh from software consulting and ₹2 lakh as referral commission from a hiring platform. The software consulting receipts fall under the Sl. No. 3 review. The referral commission needs separate tax treatment.

For business taxpayers under Sl. No. 1, commission, brokerage and agency income create a direct exclusion under Section 58(11)(a). It must not be reported as professional receipts under the presumptive professional category.

This is not true for professional income. You can still apply Section 58 on your professional income and pay taxes on 50% of the total revenue.

Change 2: Losses from other sources and general deductions cannot reduce taxes on your freelance income

Section 58(4) blocks any loss, allowance or deduction against income computed under Section 58.

So, as a freelancer, you cannot reduce presumptive professional income with losses or deductions under the old regime from another activity.

Change 3: Declaring profits below 50% now triggers a mandatory audit, even if you never used Section 58 before

If a professional declares profit below 50% and total income exceeds the basic exemption limit, Section 58(3) requires books under Section 62 and audit under Section 63.

This applies even if the freelancer has never used Section 58 before.

Earlier section 44ADA used the words “opt to be taxed under 44ADA”. This led to the interpretation that if you have never “opted” for Section 44ADA before, you can declare less than 50% profits without having to maintain books and get an audit done.

This confusing wording has been removed. The new act simply states that the taxes for the eligible taxpayers doing eligible business/profession will be calculated as follows.

All three changes have filing implications that cannot be resolved with generic solutions. Whether the developer has any commission income, how their losses stack up, and whether their actual profit margin is close to the 50% threshold are questions with individual answers. Get professional advice before the first TY 2026-27 filing.

What stays the same under Section 58 for professionals?

Developers who used Section 44ADA do not need to treat Section 58 as a full reset. Section 58, Sl. No. 3 keeps the core presumptive tax structure for specified professionals.

The following points remain the same:

• Your income from the profession remains at 50% of gross receipts for specified professions under Sl. No. 3
• The base gross receipts limit remains ₹50 lakh
• The limit becomes ₹75 lakh where cash receipts do not exceed 5%
• Books of account are not required within the presumptive scheme
• Separate deduction for laptop, internet, rent, software tools, travel or subcontractor cost is not allowed
• Personal deductions under the old tax regime remain available outside the Section 58 income computation
• Written down value of assets is adjusted as if depreciation was claimed each year under Section 58(6)
• Advance tax for Section 58, Sl. No. 1 and Sl. No. 3 taxpayers is payable in one instalment by 15 March under Section 408(2)
• The five-year lock-in rule still does not apply to professionals under Sl. No. 3

What is the five-year lock-in rule and does it apply to you?

The five-year lock-in under Section 58(7) applies exclusively to Sl. No. 1 taxpayer (the old 44AD) equivalent for general businesses. It does NOT apply to specified professions under Sl. No. 3.

📌 For business taxpayers (Sl. No. 1): If an eligible taxpayer uses the presumptive scheme and then declares income below the presumptive rate in any of the next five tax years, he/she cannot use Section 58 for five tax years after the year of exit.

If the lock-in applies and total income exceeds the basic exemption limit, the taxpayer must maintain books under Section 62 and get the books audited under Section 63.

For professionals under Sl. No. 3, the five-year lock-in is not there. A developer takes Section 58 in TY 2026-27. Next year, if expenses go up, he shifts to the regular method with books. In TY 2028-29, he returns to Section 58, if the receipts and other conditions fit. The choice is made for each year.

What does this mean if you filed under 44ADA before TY 2026-27?

Nothing changes for AY 2026-27. That return is for income earned in FY 2025-26. It is still governed by the Income-tax Act, 1961 so Section 44ADA applies for eligible professionals.

You do not need to revise old filings only because Section 58 comes in from the new law.

From TY 2026-27, the new Income-tax Act, 2025 applies. This tax year covers income earned from 1 April 2026 to 31 March 2027. For developers and other eligible professionals who used 44ADA earlier, the new section is Section 58, Sl. No. 3.

There is no fresh opt-in process for professionals. If you want to remain under presumptive taxation, use the new section reference on the return.

Section 536(2) protects earlier options, declarations and choices under the old Act where the new Act carries the same idea forward.

The new Income Tax Act uses “Tax Year”. So TY 2026-27 means income earned from April 2026 to March 2027. It replaces the old way (Financial Year and Assessment Year).