Section 44AD lets eligible businesses declare profit at 8% of turnover (6% for digital receipts), and Section 44ADA lets specified professionals declare 50% of gross receipts, as presumptive income. The limits are Rs.3 crore (44AD) and Rs.75 lakh (44ADA) where cash receipts are within 5%.
How presumptive taxation works
Presumptive schemes let small businesses and professionals declare income at a fixed percentage of turnover/receipts, without maintaining detailed books or undergoing audit. The declared percentage is deemed to be the income; actual expenses are not separately deducted.
The rates and limits
| Section | Who | Presumptive income | Turnover limit |
|---|---|---|---|
| 44AD | Resident business (not LLP) | 8% (6% for digital receipts) | Rs.2 cr; Rs.3 cr if cash ≤ 5% |
| 44ADA | Specified professionals | 50% of gross receipts | Rs.50 lakh; Rs.75 lakh if cash ≤ 5% |
| 44AE | Goods carriage operators | Per-vehicle deemed income | Up to 10 vehicles |
The enhanced limits (Rs.3 crore / Rs.75 lakh) apply only where cash receipts do not exceed 5% of total receipts.
The 5-year continuation rule (44AD)
If a taxpayer opts for 44AD and later declares income below the presumptive rate within the next five years, they are barred from 44AD for five years and must maintain books and get a tax audit if income exceeds the basic exemption. So opting in and out opportunistically is not allowed.
Advance tax and other points
- Presumptive taxpayers pay 100% of advance tax by 15 March (single instalment).
- 44ADA covers specified professions (legal, medical, engineering, architecture, accountancy, technical consultancy, interior decoration, and others notified).
- Declaring a higher actual income than the presumptive rate is permitted.
- 44AD excludes LLPs, commission/brokerage and agency businesses.
Worked example: consultant under 44ADA
A freelance architect bills Rs.40,00,000 in FY 2026-27, with 96% of receipts through bank. Under Section 44ADA, deemed income is 50% = Rs.20,00,000, no books of account required (beyond the basic Section 44AA relaxation), no audit, and the entire advance tax is one instalment by 15 March. Actual expenses — studio rent, software, staff — are irrelevant; if real expenses are only 20% of receipts, the presumptive election shelters the 30% differential from tax computation entirely legally. Conversely, a professional whose real margin is below 50% should model opting out — with the audit cost and the books requirement priced in.
| Parameter | 44AD (business) | 44ADA (profession) |
|---|---|---|
| Eligibility | Resident individual/HUF/firm (not LLP); turnover ≤ Rs.2 crore (Rs.3 crore if cash ≤ 5%) | Specified professionals; receipts ≤ Rs.50 lakh (Rs.75 lakh if cash ≤ 5%) |
| Deemed income | 8% (6% for digital receipts) | 50% |
| Advance tax | Single instalment, 15 March | Single instalment, 15 March |
| Lock-in on exit | 5-year lock-out (44AD(4)) | No equivalent lock-out |
Positions that get tested
- Declaring exactly the floor: 8%/6%/50% is a floor, not a cap — taxpayers may declare higher; declaring the floor while bank credits suggest far higher margins invites e-verification queries matched against AIS.
- Partner remuneration: a firm's 44AD income is after-all-deductions — no separate deduction for partner salary/interest; partners receiving remuneration cannot use 44ADA on that remuneration (it is not professional gross receipts).
- Multiple businesses: 44AD applies per assessee, not per business — aggregate all eligible business turnover; commission agents and brokers are excluded entirely.
- The Rs.75 lakh/Rs.3 crore enhanced limits require cash receipts within 5% — track this in the receipts register, not as a year-end estimate.
- TDS mismatch refunds: 44ADA professionals suffering 10% TDS on gross receipts but paying tax on 50% at slab rates should file early — the refund cycle is the main working-capital cost of the regime.
Under the Income-tax Act 2025, 44AD and 44ADA continue as Sections 58 and 59 with the same percentages and limits. Verify at incometax.gov.in.
Choosing between presumptive and regular: a decision framework
| Factor | Points to presumptive | Points to regular books |
|---|---|---|
| Real margin vs deemed rate | Margin above 50%/8%/6% | Margin clearly below the deemed rate |
| Compliance capacity | Solo practitioner, no accountant | Established back office already maintaining books |
| Loss years expected | — | Losses need books to be claimed and carried forward |
| Future credit needs | — | Banks prefer audited financials for larger limits |
| 5-year lock-out (44AD) | Stable margins | Volatile margins that may dip below 8%/6% |
Remember that presumptive income still stacks with everything else: capital gains, rent and interest ride on top at slab rates, advance-tax applies to the aggregate, and the AIS mirrors your gross receipts through TDS and payment-gateway reporting — the regime simplifies computation, not visibility.
Key takeaways
- 44AD: 8%/6% of turnover; limit Rs.2 cr (Rs.3 cr if cash <=5%).
- 44ADA: 50% of receipts; limit Rs.50 lakh (Rs.75 lakh if cash <=5%).
- Opting out of 44AD triggers a 5-year lock-out and audit.
- Presumptive taxpayers pay 100% advance tax by 15 March.