Presumptive taxation for small business (section 44AD)

Presumptive taxation lets a small business declare a fixed share of turnover as profit and skip detailed books. Under section 44AD, a business can declare 8% of turnover, or 6% of the part received digitally. Turnover must be within ₹2 crore, or ₹3 crore if cash receipts are no more than 5% of turnover. You file ITR-4 if you meet its other conditions.

These are the rules for the tax year 2025-26 under the Income-tax Act, 1961. From the tax year 2026-27 the Income-tax Act, 2025 applies. It puts 44AD, 44ADA and 44AE together in one table in section 58, with the same rates and limits: 6% and 8%, ₹2 crore or ₹3 crore for business, 50% and ₹50 lakh or ₹75 lakh for professions, and the same per-vehicle amounts for goods carriages.

Who can use it

• A resident individual, HUF or firm (other than an LLP).
• With business income (not professional income, which is covered by 44ADA).
• Whose turnover is within the limit.

You cannot use it if you carry on a specified profession, earn commission or brokerage, or run an agency business. It is also closed to a person who claims, for the year, the deduction for a unit in a special economic zone or one of the profit-linked deductions "in respect of certain incomes". A goods carriage business uses 44AE instead.

The rate, step by step

1. Split your turnover into the part received digitally (account-payee cheque, draft, or electronic mode) and the part received in cash.
2. Take 6% of the digital part and 8% of the cash part.
3. Add the two. That is your deemed profit.
4. You may declare a higher profit if your actual profit is higher.

Example. Turnover of ₹40,00,000, of which ₹36,00,000 is digital and ₹4,00,000 is cash.

• 6% of ₹36,00,000 = ₹2,16,000.
• 8% of ₹4,00,000 = ₹32,000.
• Deemed profit: ₹2,48,000.

Cash is 10% of turnover, which is above 5%, so the turnover limit is ₹2 crore, and ₹40 lakh is well within it.

The turnover limit and the 5% cash test

If your turnover is above the limit, you are outside the scheme and need full books, which means ITR-3.

Section 44ADA for professionals

A specified professional (doctor, lawyer, architect, engineer, consultant and similar) can declare 50% of gross receipts as income.

Under the Income-tax Act, 2025 the professions covered are legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, information technology and company secretary, plus any other profession the Board notifies. The scheme is open to a resident individual or a firm other than an LLP; an HUF cannot use 44ADA.

Section 44AE for goods carriage owners

If you own not more than 10 goods carriages, income is fixed per vehicle per month.

• Heavy goods vehicle (gross weight above 12,000 kg): ₹1,000 per ton of gross vehicle weight per month or part of a month.
• Other goods carriage: ₹7,500 per month or part of a month.

ITR-4 or ITR-3

You can file ITR-4 (Sugam) if your business income is only under 44AD, 44ADA or 44AE, you are a resident, total income is up to ₹50 lakh and the other conditions hold: one house property, long-term equity gain up to ₹1,25,000 with no other capital gain, agricultural income up to ₹5,000, no foreign assets and so on. Otherwise use ITR-3. Speculative or F&O income also takes you to ITR-3. See our guide on which ITR form to file.

What the scheme saves, and what it does not

If you declare profit at or above the presumptive rate, the tax audit rules do not apply to that income. If you claim a lower profit and your total income is above the basic exemption limit, you must keep books of account and have them audited. You still need:

• A PAN, a bank account and proper invoicing.
• To report turnover, the digital and cash split, and bank details.

The five-year catch

If you opt out of 44AD within five years of opting in, or you declare profit below the deemed rate, the scheme is lost for five years and books and an audit may follow once your income exceeds the basic exemption. TaxCare flags this for a Tax Expert rather than computing it.

The Income-tax Act, 2025 keeps the same rule in section 58(7) and (8): if you declare profit under the scheme for a year and then, in any of the next five tax years, declare it otherwise, you cannot use the scheme for the five tax years after that year. While that bar applies and your total income is above the basic exemption limit, you must keep books and have them audited.

Regime choice

A person with business income chooses the old or new regime by filing Form 10-IEA, not inside the return. See our guide on regime choice for business income.

Audit thresholds when you leave the scheme

If you keep books instead, an audit is required above turnover thresholds: ₹1 crore for business (or ₹10 crore where cash receipts and payments are each no more than 5%), and ₹50 lakh of gross receipts for a profession.

Due date

For a person with business or professional income whose accounts need no audit, the due date from the tax year 2025-26 is 31-Aug of the next year. Where audit applies, it is 31-Oct.

How TaxCare helps

TaxCare takes your turnover and the digital and cash split, applies the right rate and limit, tells you if you have crossed a limit, and picks ITR-4 or ITR-3 from your data. It flags the five-year rule for a Tax Expert. A Tax Expert can also take over books-based returns.

This guide gives general information and is not professional tax advice.