Presumptive taxation replaces the whole apparatus of profit computation with a formula. Instead of proving what you earned after expenses, you declare a fixed percentage of your turnover and pay tax on that.
For a small trader or an independent professional that is a real saving in time and accountancy cost. It is also a decision with a five-year tail, and it is closed to LLPs and companies. This post gives you the figures for FY 2025-26, the eligibility, and the two traps that catch people. For the return itself, see our business ITR filing service.
The figures, side by side
| Point | Section 44AD (business) | Section 44ADA (profession) |
|---|---|---|
| Who can use it | Resident individual, HUF or partnership firm, not an LLP | Resident individual or partnership firm, not an LLP, in a profession listed in section 44AA(1) |
| Turnover or receipts limit | ₹2 crore | ₹50 lakh |
| Higher limit | ₹3 crore, where cash receipts are not more than 5% of turnover | ₹75 lakh, where cash receipts are not more than 5% of gross receipts |
| Profit to declare | 8% of turnover; 6% on receipts by account payee cheque, bank draft or electronic mode | 50% of gross receipts |
| Not available for | Professions, commission or brokerage, agency business, goods carriages (section 44AE) | Businesses |
| Books of account | Not required | Not required |
| Tax audit under section 44AB | Not required while you stay within the scheme and declare at or above the rate | Not required on the same terms |
| Return | ITR-4 (Sugam), or ITR-3 where ITR-4 is unavailable | ITR-4 (Sugam), or ITR-3 where ITR-4 is unavailable |
| Advance tax | Whole amount by 15 March | Whole amount by 15 March |
A cheque or a draft that is not account payee counts as a cash receipt for the 5% test. This is the detail that most often costs a business its ₹3 crore limit.
Section 44AD: businesses
Section 44AD is for a resident individual, HUF or partnership firm carrying on an eligible business.
Your presumptive income depends on how you were paid, not on how you invoiced:
- 6% of turnover received through account payee cheque, bank draft or electronic mode, which covers bank transfer, UPI, NEFT and RTGS.
- 8% of turnover received in cash or any other mode.
A business with mixed receipts applies each rate to the relevant portion.
Worked example. A trading business has FY 2025-26 turnover of ₹80,00,000, of which ₹65,00,000 came in digitally and ₹15,00,000 in cash.
| Receipts | Rate | Presumptive income |
|---|---|---|
| ₹65,00,000 digital | 6% | ₹3,90,000 |
| ₹15,00,000 cash | 8% | ₹1,20,000 |
| Total | ₹5,10,000 |
That ₹5,10,000 is the taxable business income, whatever the actual expenses were.
Two points follow. First, 6% and 8% are minimums. You may declare more, and you should where your real profit is clearly higher: a declared income that sits well below your evident drawings and investments is a scrutiny risk. Second, the arithmetic cuts both ways. If your real margin is below the deemed rate, you pay tax on profit you did not make.
Who cannot use 44AD
- LLPs. This is the trap worth flagging before you incorporate rather than after. Plenty of small businesses register as an LLP for the liability protection without realising they have given up section 44AD entirely. If presumptive taxation matters to you, weigh it in the structure decision: see our LLP registration and sole proprietorship pages.
- Companies and non-residents.
- Businesses of plying, hiring or leasing goods carriages, which are covered by section 44AE.
- Agency businesses, and anyone earning income by way of commission or brokerage.
- Professions listed in section 44AA(1), which use section 44ADA instead.
What you give up
Opting for 44AD means no further deduction for business expenses under sections 30 to 38. Rent, salaries, electricity, repairs and depreciation are all deemed to be inside the 6% or 8% figure.
Depreciation is the one that surprises people. It is deemed to have been allowed, so the written-down value of your assets must still be reduced each year even though you never claimed it. That matters when you eventually sell an asset, or when you leave the scheme and go back to regular computation with a lower WDV than you expected.
Leaving 44AD: the five-year rule
This is the provision most owners miss, and it is section 44AD(4).
If you use section 44AD for a year and then, in any of the next five years, declare profit below the presumptive rate, you lose the scheme for the following five assessment years.
Section 44AD(5) is what turns that into work: while the restriction applies, you must maintain books under section 44AA and get them audited under section 44AB in any year your total income is above the basic exemption limit.
So the decision to step out of the scheme is not a one-year decision. Before you drop to a lower profit figure, work out whether the tax saved in that year outweighs five years of books and audits.
There is an asymmetry worth knowing. If you become ineligible for a different reason, because your turnover crosses the limit for instance, the section 44AD(4) bar does not bite in the same way. It is the voluntary declaration of a lower profit that triggers it.
Section 44ADA: professions
Section 44ADA does the same job for a resident individual or partnership firm, other than an LLP, carrying on a profession listed in section 44AA(1). That covers legal, medical, engineering, architectural, accountancy, technical consultancy and interior decoration work, among others.
You declare 50% of gross receipts as income. The remaining half is presumed to cover every expense.
Worked example. A freelance consultant with ₹18,00,000 of gross receipts in FY 2025-26, all received by bank transfer, declares ₹9,00,000 as business income and pays tax on that at the applicable slab rates. No detailed books, and no tax audit while she stays within the limit and declares at or above 50%.
The receipts limit is ₹50 lakh, rising to ₹75 lakh where cash receipts are not more than 5% of gross receipts. Section 44ADA(4) carries its own audit consequence where income is declared below the presumptive rate.
The FY 2025-26 mechanics for professionals are covered in more detail in our section 44ADA guide. If you are a freelancer weighing this up, our freelancer ITR filing page covers the return itself.
Which return, and by when
Presumptive filers use ITR-4 (Sugam), which has a dedicated presumptive section: turnover in, rate applied, income out.
ITR-4 is not available if you have short-term capital gains or long-term capital gains above ₹1,25,000, more than one house property, foreign assets or foreign income, or if you are a director or hold unlisted shares. It is also limited to total income of ₹50 lakh. In any of those cases you file ITR-3 and still claim the presumptive computation inside it. Our guide on which ITR form to file walks through the choice.
For FY 2025-26 (AY 2026-27):
| Date | What it was |
|---|---|
| 31 August 2026 | Due date for non-audit business and professional cases, including presumptive filers, under section 139(1) as amended by the Finance Act, 2026 |
| 31 December 2026 | Belated return under section 139(4) |
| 31 March 2027 | Revised return under section 139(5) |
The full date table is in our post on ITR due dates for AY 2026-27.
If you have not filed, 31 August has passed. A belated return is open until 31 December 2026, with a late fee of ₹1,000 or ₹5,000 under section 234F and interest at 1% a month on unpaid tax under section 234A. Two consequences of being late matter more than the fee: the old regime can only be chosen in a return filed by the section 139(1) due date, and a business loss cannot be carried forward from a late return. Our business ITR filing service handles this.
Advance tax: one instalment, 15 March
Ordinary taxpayers pay advance tax in four instalments, at 15%, 45%, 75% and 100% by 15 June, 15 September, 15 December and 15 March. A taxpayer under section 44AD or 44ADA pays the whole amount by 15 March, under section 211(1)(b).
That is a genuine cash-flow advantage, particularly for a seasonal business, and it is also a single date to miss. Advance tax applies once your liability for the year is ₹10,000 or more.
Old or new regime
The new regime is the default. A filer with business or professional income who wants the old regime has to file Form 10-IEA by the section 139(1) due date, and once you switch back the option to move again is restricted. A belated return therefore cannot take the old regime. Our comparison of the new versus old tax regime sets out the trade-off.
44AD or regular books: how to decide
Two questions settle it.
Is your actual margin consistently above the deemed rate? If your real profit is well above 6% or 8% of turnover, or above 50% of receipts, the scheme saves you both tax and effort. If your real margin is thinner than the deemed rate, you are paying tax on profit you never earned, and regular books may cost less overall even with the accountancy fee.
Will your turnover stay inside the limits for the next five years? The scheme is a five-year commitment in substance. If you are growing quickly, or your revenue is volatile, the lock-in becomes a liability rather than a simplification. Our tax planning team can run both computations on your figures.
Beyond those two, the things worth checking are whether you have capital gains or foreign assets that push you out of ITR-4, and whether you are a partnership firm, where the treatment of payments to partners has changed: section 194T brought TDS on salary, remuneration, commission, bonus and interest paid to partners from FY 2025-26. Confirm the current threshold with your CA before paying partners; our TDS return filing team handles the deduction and the return.
Two things presumptive taxation does not do
It does not touch your GST. GST registration, returns and rates run on their own rules and turnover tests. Declaring 6% of turnover as income under 44AD has no bearing on your GSTR-1 or GSTR-3B, and a presumptive filer above the GST threshold files GST returns exactly like anyone else. See our GST return filing page.
It does not exempt you from the section 44AB audit in every case. The audit is avoided while you stay inside the scheme and declare at or above the presumptive rate. Declare below it, or cross the turnover limits, and the section 44AB tests apply on their own terms: ₹1 crore for business, ₹10 crore where cash receipts and cash payments are each within 5%, and ₹50 lakh for a profession. For AY 2026-27 the audit report in Form 3CA or 3CB with Form 3CD is due by 30 September 2026, and missing it attracts a section 271B penalty of 0.5% of turnover or ₹1,50,000, whichever is less. Our tax audit page sets out the limits.
The mistakes that cost the most
- Assuming an LLP can use 44AD. It cannot, and the discovery usually comes after incorporation.
- Applying 6% to everything. The rate follows how you were paid, not how you invoiced.
- Losing the ₹3 crore limit to a non-account-payee cheque. It counts as cash for the 5% test.
- Stepping out of the scheme casually. That is section 44AD(4), five assessment years, plus books and audit under section 44AD(5).
- Missing 15 March. It is a single full instalment, not a quarter.
- Ignoring deemed depreciation. The written-down value still falls each year.
- Declaring the minimum when real profits are far higher. It is a scrutiny risk, not a saving.
Which Act applies
FY 2025-26 income is computed and filed under the Income-tax Act, 1961, so sections 44AD, 44ADA, 44AB, 44AA, 211 and 234F are the provisions that govern the return you are filing now.
The Income-tax Act, 2025 came into force on 1 April 2026 and governs Tax Year 2026-27 onwards. Under it the audit provision is section 63 with Form 26, the late fee is section 428 at the same ₹1,000 and ₹5,000, and advance tax interest sits in section 425. The section numbers for the presumptive schemes themselves, and whether the turnover limits carry over unchanged, are not confirmed, so we do not state them. Keep your FY 2026-27 records on the current basis and we will map them once the new forms are notified.
What to do next
If you are choosing between presumptive taxation and regular books, the arithmetic is one afternoon: your real margin against the deemed rate, and your likely turnover over five years. If you are already in the scheme and your FY 2025-26 return is not filed, the date that matters is 31 December 2026.
Regikart is a CA and CS firm serving 250+ clients from Kolkata (head office), Delhi and Bengaluru. We compare your actual margin against the deemed rate, check the eligibility and the five-year implications, compute the single 15 March instalment, and file the return through our income tax return filing service. Call or WhatsApp +91 70444 94804, or contact us.
Frequently asked questions
What is the turnover limit for section 44AD?
₹2 crore in general, rising to ₹3 crore where cash receipts are not more than 5% of total turnover or gross receipts. A cheque or draft that is not account payee counts as a cash receipt for that test, so a single non-account-payee cheque can push you over the 5% line and back to the ₹2 crore limit.
How is income calculated under section 44AD?
At 6% of turnover received by account payee cheque, bank draft or electronic mode, and 8% of turnover received in cash or any other mode. A business with mixed receipts applies each rate to the relevant portion. Both are minimum rates: you may declare a higher income and should where your actual profit is clearly higher.
What is the difference between sections 44AD and 44ADA?
44AD is for eligible businesses, at 6% or 8% of turnover, with limits of ₹2 crore and ₹3 crore. 44ADA is for professions listed in section 44AA(1), at 50% of gross receipts, with limits of ₹50 lakh and ₹75 lakh. Both are open to resident individuals and partnership firms but closed to LLPs, and 44AD is additionally open to HUFs.
Can an LLP or a company use section 44AD?
No. Section 44AD is available only to a resident individual, HUF or partnership firm. LLPs, companies and non-residents are excluded, and so are agency businesses, commission and brokerage income, and goods carriage businesses covered by section 44AE. If presumptive taxation matters to you, decide it before you pick a structure.
What is the five-year rule under section 44AD?
Under section 44AD(4), if you use the scheme for a year and then, in any of the next five years, declare profit below the presumptive rate, you lose the scheme for the following five assessment years. Section 44AD(5) then requires books under section 44AA and an audit under section 44AB in any year your total income exceeds the basic exemption limit.
Can freelancers use presumptive taxation?
A freelancer in a profession listed in section 44AA(1), such as legal, medical, engineering, architectural, accountancy, technical consultancy or interior decoration work, can use section 44ADA and declare 50% of gross receipts, up to ₹50 lakh or ₹75 lakh on the cash test. A freelancer whose work is a business rather than one of those professions would look at section 44AD instead.
Do I need to maintain books under presumptive taxation?
No, not while you stay inside the scheme and declare income at or above the presumptive rate. That relief is the main point of the scheme. It ends the moment section 44AD(4) or 44ADA(4) applies to you, at which point section 44AA books and a section 44AB audit follow in any year your income is above the basic exemption limit.
Can I claim business expenses separately under the scheme?
No. Rent, salaries, electricity, repairs and depreciation are all deemed to be accounted for in the 6%, 8% or 50% figure, and no further deduction is allowed under sections 30 to 38. Depreciation is deemed to have been allowed, so your written-down value still reduces each year even though you never claimed it.
When is advance tax due if I file under 44AD or 44ADA?
The whole amount by 15 March, in a single instalment, under section 211(1)(b), instead of the four instalments of 15%, 45%, 75% and 100% that apply to everyone else. Advance tax applies once your liability for the year is ₹10,000 or more. Tax paid by 31 March still counts, but section 234C interest runs on the shortfall.
Which ITR form do I file under presumptive taxation?
ITR-4 (Sugam), which has a dedicated presumptive section. ITR-4 is unavailable if you have short-term capital gains or long-term capital gains above ₹1,25,000, more than one house property, foreign assets or income, unlisted shares or a directorship, or if total income exceeds ₹50 lakh. In those cases you file ITR-3 and claim the presumptive computation inside it.
What was the due date for a 44AD return for FY 2025-26?
31 August 2026, the date that applies to non-audit business and professional cases under section 139(1) as amended by the Finance Act, 2026. That has passed. A belated return is open until 31 December 2026, with the section 234F fee of ₹1,000 or ₹5,000, section 234A interest, no old regime and no business-loss carry-forward.
44AD mein kitna profit dikhana padta hai?
Digital receipts par turnover ka 6%, aur cash receipts par 8%. Yeh minimum hai: agar aapka actual profit isse zyada hai to zyada declare karna chahiye. 44ADA wale professionals ke liye gross receipts ka 50% hai. Isse kam declare karne par section 44AD(4) lagta hai, jiske baad paanch saal tak scheme band ho jati hai aur books aur audit zaroori ho jate hain.
Does presumptive taxation affect my GST?
No. GST registration, returns and rates run on their own turnover tests and are unaffected by how your income tax profit is computed. A business declaring 6% of turnover under section 44AD files GSTR-1 and GSTR-3B exactly like any other registered business. The two regimes share a turnover figure and nothing else.
About the author
CA Deepak Jaiswal
Founding Partner, FCA at Regikart. Want to discuss this in the context of your business?
