Presumptive Taxation for Small Businesses and Professionals: 44AD, 44ADA and the New Section 58
Declare 8%, 6% or 50% of receipts as income and skip books and audit. The limits, who qualifies, the five-year lock-in, and what changes when the Income-tax Act 2025 takes over on 1 April 2026.
In this article
Presumptive taxation lets a small business or professional declare a fixed percentage of receipts as income and skip the books of account and tax audit that would otherwise be required. It is the simplest way to stay compliant for a large share of India's proprietors, small traders and independent professionals.
This guide covers the rules for the return you will file for FY 2025-26, and what changes when the Income-tax Act 2025 replaces the 1961 Act on 1 April 2026.
The three schemes
| Business (44AD) | Profession (44ADA) | Goods carriages (44AE) | |
|---|---|---|---|
| Who | Resident individual, HUF, partnership firm (not LLP) | Resident individual or firm in a notified profession | Anyone owning up to 10 goods vehicles |
| Receipts limit | ₹2 crore; ₹3 crore if cash receipts are ≤5% of total | ₹50 lakh; ₹75 lakh if cash receipts are ≤5% | Not turnover-based |
| Deemed income | 8% of receipts; 6% for receipts received digitally or by banking channel | 50% of gross receipts | Heavy vehicles ₹1,000 per ton per month; others ₹7,500 per vehicle per month |
| Books and audit | Not required | Not required | Not required |
"Notified professions" for 44ADA are legal, medical, engineering, architecture, accountancy, technical consultancy, interior decoration, and a few others notified by the Board. Commission agents, agency businesses and anyone claiming deductions under sections 10A–10BA or 80-IA to 80RRB cannot use 44AD.
How it works in practice
- Income is deemed at the scheme's rate. You may declare a higher profit if you wish — you cannot deduct any business expense on top; all expenses, including depreciation, are treated as already allowed.
- Partner's remuneration and interest cannot be deducted from the presumptive income of a firm since AY 2017-18.
- Advance tax is paid in a single instalment by 15 March rather than four instalments.
- File ITR-4 (Sugam).
The five-year lock-in
This is the trap. If you use 44AD in one year and then, in any of the next five years, declare a profit lower than 8%/6% and your total income exceeds the basic exemption limit, you must:
- keep books of account and get them audited for that year; and
- stay out of 44AD for the five following years.
The lock-in applies to business income under 44AD only, not to professionals under 44ADA — a professional who declares less than 50% simply needs books and audit for that year.
When presumptive is not the cheaper option
Presumptive taxation assumes a margin. If your real margin is well below 8% (thin-margin trading, for example) or below 50% for a profession with heavy costs, you may pay more tax than you would with proper books. Run both numbers before choosing — and remember the lock-in before switching out.
What changes on 1 April 2026
The Income-tax Act 2025 applies from tax year 2026-27. It consolidates 44AD, 44ADA and 44AE into section 58, with the schemes laid out in tables. The numbers do not change: the ₹2 crore / ₹3 crore and ₹50 lakh / ₹75 lakh limits, the 8% / 6% / 50% rates and the goods-carriage rates all continue. What does change is the vocabulary ("tax year" replaces "previous year" and "assessment year") and the section references you will see on forms and notices.
For FY 2025-26 — the return due in 2026 — the 1961 Act still applies and the old section numbers are the right ones.
A worked example
A consultant with ₹40 lakh of receipts, all through bank transfer, under 44ADA declares ₹20 lakh as income. If their actual expenses (office, staff, software, travel) are ₹8 lakh, the real profit is ₹32 lakh — presumptive saves tax on ₹12 lakh and the cost of an audit. If their actual expenses are ₹25 lakh, the real profit is ₹15 lakh and presumptive costs them tax on ₹5 lakh — books are cheaper.
A trader with ₹1.8 crore of turnover, 70% digital, declares 6% on ₹1.26 crore plus 8% on ₹54 lakh: ₹7.56 lakh + ₹4.32 lakh = ₹11.88 lakh. Their real margin at 4% would be ₹7.2 lakh — presumptive costs them tax on ₹4.68 lakh, but avoids the audit and the five-year lock-in if they later need to declare lower.
Our income tax services include a presumptive-versus-books comparison on your actual figures before the return is filed.
Frequently asked questions
Which law applies to my return for FY 2025-26?
The Income-tax Act 1961 — sections 44AD, 44ADA and 44AE. The Income-tax Act 2025 applies from tax year 2026-27 (1 April 2026 onwards), where the same schemes sit in section 58. The limits and rates are unchanged.
Can I declare a profit lower than 8%?
Yes, but then you must keep books and get them audited if your total income exceeds the basic exemption, and for business income under 44AD you are barred from the presumptive scheme for the next five years.
Can a company or LLP use presumptive taxation?
No. Section 44AD is for resident individuals, HUFs and partnership firms (not LLPs). Section 44ADA is for resident individuals and partnership firms in notified professions. Companies and LLPs must keep books.
Do I still have to pay advance tax?
Yes, but in one instalment: the whole year's advance tax by 15 March instead of four instalments.
Sources
This article is general information for Indian MSMEs, not advice on your specific case. Scheme terms, tax rates and due dates change; the sources above were checked when the article was written or last updated. Speak to a professional before acting on it.
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