Section 44AD Presumptive Taxation: Limits, Rates and 44ADA

Quick answer: Section 44AD presumptive taxation lets a resident individual, HUF or partnership firm running a small business declare 8% of turnover as profit, or 6% of turnover received by banking or digital channels, with no detailed books or audit. The limit is Rs 2 crore, or Rs 3 crore if cash receipts are 5% or less. From April 2026 it continues under section 58 of the Income-tax Act, 2025.

For shopkeepers, traders, small manufacturers and contractors, 44AD turns the hardest part of a tax return, working out profit, into a single percentage. This guide explains who qualifies, the limits and rates, the five-year rule, how 44AD maps to section 58 of the new Act, a direct comparison of 44AD vs 44ADA, and a worked example with real tax figures. Professionals such as developers and consultants should read our guide to section 44ADA for professionals as well. Whatever scheme you use, every receipt starts with an invoice, which you can create free with our invoice generator.

This article is general information as of 2026, not tax or legal advice. Check the current law on incometaxindia.gov.in or with a chartered accountant before you file.

What is section 44AD presumptive taxation?

"Presumptive" means the law presumes your profit is a fixed share of your turnover. Under section 44AD of the Income-tax Act, 1961, that share is:

• 6% of turnover or gross receipts received by account payee cheque, account payee bank draft, bank transfer, UPI or other prescribed electronic modes, within the year or by the return due date; and
• 8% of the rest, including cash.

You can always declare a higher profit if your real margin is higher. Declaring less takes you out of the scheme's protection, as explained below. In exchange, you get three big benefits: no obligation to maintain the detailed books required under section 44AA for the business, no tax audit while you stay within the rules, and, under the 1961 Act, a single advance tax payment by 15 March.

Who can use section 44AD

Eligible persons

The scheme is open to resident individuals, resident Hindu undivided families and resident partnership firms. Limited liability partnerships and companies cannot use it, and neither can non-residents.

Eligible businesses

Most trading, retail, wholesale, manufacturing and contracting businesses qualify. The scheme excludes:

• Specified professions such as legal, medical, engineering, architecture, accountancy, technical consultancy and similar, which use 44ADA instead.
• Income from commission or brokerage, and any agency business.
• Plying, hiring or leasing goods carriages, which uses 44AE.

A person who has claimed certain profit-linked deductions for the year, such as those in sections 10A, 10AA or 80HH to 80RRB, is also excluded.

Section 44AD limits and rates

Feature	Rule
Turnover limit	Rs 2 crore
Higher limit	Rs 3 crore if cash receipts do not exceed 5% of total turnover or gross receipts
Deemed profit on digital and banking receipts	6%
Deemed profit on other receipts, including cash	8%
Expenses and depreciation	Deemed to be allowed; no separate deduction
Books of account	Not required under section 44AA for this business
Tax audit	Not required if presumptive profit or more is declared
Advance tax (1961 Act)	Single instalment by 15 March
Usual return form	ITR-4 (Sugam), or ITR-3 where ITR-4 conditions are not met

The digital rate matters more than it looks. A shop that takes most payments by UPI or bank transfer is taxed on 6% instead of 8%, a quarter less presumptive income for the same turnover. Encouraging customers to pay through a payment link or QR code on your invoice therefore reduces tax as well as cash handling.

The five-year rule and when an audit applies

Section 44AD(4) adds a commitment. If you use the scheme in one year and then, in any of the next five years, declare profit lower than the presumptive rate, you lose the scheme for the five years after that. During those years, if your total income is above the basic exemption limit, you must keep books of account and have them audited under section 44AB.

An audit is also required in any year you declare profit below 8% or 6% and your total income is above the basic exemption limit. If turnover rises above Rs 2 crore or Rs 3 crore, 44AD stops applying and the normal audit thresholds in section 44AB apply: Rs 1 crore, or Rs 10 crore where cash receipts and cash payments are each no more than 5%.

Section 44AD under the Income-tax Act, 2025: section 58

The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026, as covered in our guide to the Income Tax Act 2025. For income earned up to 31 March 2026, which you report in returns filed during 2026, section 44AD still applies. For tax year 2026-27 onward, the presumptive schemes in 44AD, 44ADA and 44AE are consolidated into a table in section 58 of the Income-tax Act, 2025.

Professional commentary on the enacted Act reports that the business row, serial number 1 of the table, keeps the same Rs 2 crore and Rs 3 crore limits, the 6% and 8% rates and the 5% cash test, with non-account payee cheques treated as cash. Section 58(4) bars any separate deduction against presumptive income, and section 58(7) carries forward the five-year restriction. Confirm these details against the official text before relying on them, especially for the advance tax position under the new Act.

44AD vs 44ADA

Point	44AD (section 58, serial 1)	44ADA (section 58, professions row)
Who	Businesses: traders, shops, manufacturers, contractors	Specified professionals: doctors, lawyers, engineers, architects, accountants, IT, interior decorators and similar
Eligible persons	Resident individuals, HUFs, firms (not LLPs)	Resident individuals and firms (not LLPs)
Limit	Rs 2 crore, or Rs 3 crore if cash is 5% or less	Rs 50 lakh, or Rs 75 lakh if cash is 5% or less
Deemed profit	8%, or 6% on digital and banking receipts	50% of gross receipts
Five-year restriction	Yes	No equivalent lock-in under the 1961 Act
Typical return form	ITR-4	ITR-4

The choice is not yours to make freely: it follows the nature of your work. A software developer billing for services is a professional and looks at 44ADA, while a business reselling hardware and software licences looks at 44AD. Some activities sit on the line, so take advice if you are unsure.

How to use section 44AD step by step

1. Check eligibility: resident status, entity type and that your work is a business, not a specified profession or agency.
2. Total your turnover for the year from your sales invoices and receipts.
3. Split receipts into banking or digital receipts and cash. Count only digital receipts actually received by the return due date at 6%.
4. Test the limit: Rs 2 crore, or Rs 3 crore if cash is 5% or less of the total.
5. Compute presumptive profit at 6% and 8%, and decide whether to declare more if your real margin is higher.
6. Pay advance tax by 15 March to avoid interest.
7. File ITR-4, or ITR-3 if you do not meet ITR-4 conditions, and keep invoices, bank statements and stock records to support your turnover.

Worked example: a retailer near the Rs 3 crore limit

Ravi runs an electronics shop as a sole proprietor and resident individual. In FY 2025-26 his turnover is Rs 2,80,00,000. Cash receipts are Rs 8,40,000, which is 3% of turnover, so he qualifies for the Rs 3 crore limit. The rest, Rs 2,71,60,000, came by UPI, card and bank transfer before the return due date.

Component	Amount	Rate	Presumptive profit
Digital and banking receipts	Rs 2,71,60,000	6%	Rs 16,29,600
Cash receipts	Rs 8,40,000	8%	Rs 67,200
Total	Rs 2,80,00,000		Rs 16,96,800

Assume Ravi has no other income and uses the new tax regime for FY 2025-26, where the slabs are nil up to Rs 4 lakh, 5% to Rs 8 lakh, 10% to Rs 12 lakh, 15% to Rs 16 lakh and 20% to Rs 20 lakh. His tax is Rs 20,000 + Rs 40,000 + Rs 60,000 + 20% of Rs 96,800 (Rs 19,360) = Rs 1,39,360. Adding 4% health and education cess of Rs 5,574 gives about Rs 1,44,934. The section 87A rebate does not help because his income is above Rs 12 lakh.

If all Rs 2.8 crore had been at the 8% rate, presumptive profit would be Rs 22,40,000, more than Rs 5.4 lakh higher. Digital receipts made the difference. And if Ravi's cash had been 6% of turnover instead of 3%, his turnover would exceed the Rs 2 crore limit with no access to the higher limit, so he could not use 44AD at all and would face a regular audit.

A smaller trader with Rs 1,80,00,000 of turnover, 98% received digitally, would declare Rs 1,76,40,000 x 6% = Rs 10,58,400 plus Rs 3,60,000 x 8% = Rs 28,800, a total of Rs 10,87,200. Under the FY 2025-26 new regime, income up to Rs 12 lakh gets a full section 87A rebate, so that trader would owe no income tax for the year, assuming no other income.

When 44AD is not the best choice

The scheme suits businesses whose real margin is at or above the presumptive rate. It is less attractive in a few situations:

• Thin-margin trading. A wholesaler earning 3% on turnover pays tax on 6% or 8% under 44AD. Declaring actual profit means books and an audit, but can cut the tax bill substantially.
• A loss year. Presumptive income is taxed even if the business lost money. Declaring the loss takes you out of the scheme and may trigger the five-year rule.
• Heavy cash collection. Above 5% cash, the limit drops to Rs 2 crore and every rupee of cash is taxed at 8%.
• Growing businesses. If you expect to cross the limit soon, keeping proper books from the start makes the move to regular taxation easier.

Run both calculations each year before you decide, and remember the five-year commitment once you opt in.

Records, GST and invoicing under 44AD

No detailed books does not mean no records. Keep sales invoices, purchase bills, bank and UPI statements and stock records, because the department can still ask how you reached your turnover. Our guides on tracking business expenses and how long to keep invoices help here.

44AD is separate from GST. If your turnover requires GST registration, you file GST returns as usual, or you may opt for the GST composition scheme and issue a bill of supply instead of tax invoices. Regular GST taxpayers can claim input tax credit under GST on purchases. Either way, the turnover in your GST returns and in your income tax return should reconcile. If business customers deduct TDS from your payments, the amounts appear in your Form 26AS and AIS, and our guide to TDS on professional fees explains how credits work.

Create invoices that support your 44AD turnover

Section 44AD presumptive taxation is the simplest route for most small Indian businesses, provided turnover stays under the limit and receipts are mostly digital. Clear, numbered invoices that show how each customer paid make the 6% claim easy to support. Create them free with our invoice generator, or pick a straightforward layout from the classic invoice template. When your invoice looks right, download it as a PDF and send it straight to your client.