Section 44AD: presumptive tax for small businesses
Small traders, manufacturers and service businesses can declare a fixed percentage of turnover as profit and pay tax on that, with no need to maintain detailed books or get audited. From 1 April 2026 the scheme sits in the table under section 58 of the Income-tax Act, 2025, with the same limits.
Reviewed by Vijay Dhawan, Managing Partner, LexVerge LLP, on · Published
Quick answer
Section 44AD, now in section 58 of the Income-tax Act, 2025, lets resident individuals, HUFs and firms with turnover up to ₹2 crore (₹3 crore if cash receipts are within 5%) declare 8% of turnover, or 6% of digital receipts, as profit without maintaining detailed books.
- LLPs, companies and professionals cannot use it
- Five-year lock-in if you opt out
- Advance tax in one instalment by 15 March
Official source: Income Tax Department: FAQs on presumptive taxation
How it works
| Receipts | Minimum profit to declare |
|---|---|
| Received by cheque, bank transfer, UPI, card or other digital mode (by the return due date) | 6% |
| Received in cash, or digitally after the return due date | 8% |
You may declare more than the presumptive rate. Example. A shop with turnover of ₹1.2 crore, of which ₹1 crore is by UPI and card and ₹20 lakh in cash. Minimum profit: 6% of ₹1 crore plus 8% of ₹20 lakh = ₹7.6 lakh. Tax is computed on that at slab rates, and no expense is deducted separately.
Presumptive or books? The free presumptive tax calculator compares the tax on both routes for 2026-27.
Working out the next instalment? The free advance tax calculator shows what is due by each date and any interest.
Paid late or short? See how interest under sections 423, 424 and 425 is worked out (the old 234A, 234B and 234C).
Who can use it
- Eligible: resident individuals, HUFs and partnership firms (not LLPs) carrying on business.
- Turnover limit: ₹2 crore, or ₹3 crore if cash receipts are no more than 5% of total receipts.
- Not eligible: LLPs and companies; non-residents; people earning commission or brokerage; agency business; professionals (who use the separate 50% scheme, see our section 44ADA guide); and goods carriage businesses (which have their own per-vehicle scheme).
The five-year rule
If you opt for presumptive tax in a year and then declare profit below the presumptive rate in any of the next five years, you cannot use the scheme for the following five years. In those years, if income exceeds the basic exemption limit, you must keep books and get a tax audit. So a business that expects a loss year should think before opting in; see our tax audit limit guide.
Advance tax, books and returns
- Advance tax: pay the whole amount in one instalment by 15 March. Paying later brings interest only for that shortfall.
- Books: no detailed books required, but keep bank statements, sales records and GST returns. The ITR asks for turnover, cash and bank balances, debtors, creditors and stock.
- Return: ITR-4 (Sugam) for individuals, HUFs and firms, if other income fits the form’s limits; otherwise ITR-3 or ITR-5.
- GST: presumptive income tax has nothing to do with GST composition; a business can use one, both or neither. See our composition scheme guide.
- Partners: salary and interest paid to partners are not deductible from the presumptive income of a firm.
Is it worth it?
Presumptive tax suits businesses whose real margin is above 6 to 8 percent, since they pay tax on less than they earn and save on accounting and audit fees. It suits businesses with thin margins, such as high-volume traders earning 2 to 3 percent, far less: they pay tax on profit they never made. In that case, keep books, and get audited if turnover crosses ₹1 crore (or ₹10 crore where cash receipts and cash payments are each within 5%).
Worked comparison: presumptive vs books
| Business | Turnover | Real profit | Presumptive income (mostly digital) | Better choice |
|---|---|---|---|---|
| Online store | ₹80 lakh | ₹12 lakh (15%) | ₹4.8 lakh | Presumptive: taxed on ₹7.2 lakh less |
| Wholesale trader | ₹1.8 crore | ₹4 lakh (2.2%) | ₹10.8 lakh | Books: presumptive overstates profit by ₹6.8 lakh |
| Small manufacturer | ₹1.5 crore | ₹9 lakh (6%) | ₹9 lakh | Either; presumptive saves accounting cost |
The wholesale trader keeping books stays under the audit limit only if turnover is within ₹1 crore, or within ₹10 crore with cash receipts and payments each under 5%. With mostly bank transactions, ₹1.8 crore needs no audit.
Frequently asked questions
What is section 44AD?
A presumptive tax scheme where eligible small businesses declare at least 8% of turnover (6% of digital receipts) as profit, without maintaining detailed books. It is now in section 58 of the Income-tax Act, 2025.
What is the turnover limit for 44AD?
₹2 crore, or ₹3 crore if cash receipts are no more than 5% of total receipts.
Can an LLP opt for section 44AD?
No. Only resident individuals, HUFs and partnership firms can use it; LLPs and companies cannot.
What happens if I declare less than 8% under 44AD?
If you had opted in during the previous five years, you are locked out of the scheme for five years, and must keep books and get audited if income exceeds the basic exemption limit.
Which ITR form is used for 44AD?
ITR-4 (Sugam) in most cases, or ITR-3 or ITR-5 if other income does not fit ITR-4.
ITR for Business and Freelancers from ₹1,199, by a CA.
P&L, presumptive-scheme evaluation and advance tax, filed by a CA.
Professional fee shown; government charges at actuals, quoted in writing before you pay. GST at 18% extra.
See what is included and the full priceChoosing between presumptive tax and books?
A FilingBase CA works out which saves more for your margins and files ITR-4 or ITR-3.
Keep reading.
ITR-4 (Sugam) for AY 2026-27: who can file and how
ITR-4 is the short return for presumptive business and professional income up to ₹50 lakh. Who can and cannot use it, the AY 2026-27 change to two house properties, and the dates.
Read guide→GuideTax audit limit
Who needs a tax audit, the cash test, the presumptive-tax trap, the new section 63 and Form 26, and the penalty.
Read guide→GuideSection 44ADA: Presumptive Taxation for Professionals and Freelancers, the ₹75 Lakh Limit, Who Qualifies, and When to Opt Out
Declare half your receipts as income, keep no books, pay advance tax once. Who qualifies, the limits, GST, and when real expenses beat the 50% rule.
Read guide→Official references
The statutory sources behind this page. We keep our guidance aligned to them: verify anything time-sensitive directly.
- Ministry of Corporate AffairsCompanies Act filings, forms and fee schedules
- Income Tax DepartmentReturns, forms, rates and e-filing utilities
- GST PortalRegistration, returns and rate notifications
Facts on this page are checked against these sources; the date of the last check is shown at the top of the page. It is general guidance, not advice on your specific facts. How we write and check our guides.