Presumptive taxation (44AD and 44ADA)
What Presumptive taxation (44AD and 44ADA) means, how it works, a worked example, the mistakes we see and the questions founders ask.
DefinitionPresumptive taxation lets small businesses declare 8% of turnover (6% if digital) under Section 44AD, and professionals 50% of receipts under 44ADA, as taxable profit without maintaining audited books.
Section 44AD applies to resident individuals, HUFs and partnership firms (not LLPs) with business turnover up to ₹2 crore, or ₹3 crore if at least 95% of receipts are digital. Section 44ADA applies to specified professionals such as doctors, lawyers, architects, engineers, accountants and consultants with receipts up to ₹50 lakh, or ₹75 lakh with 95% digital receipts. You declare the presumptive percentage as profit, pay tax on it at slab rates, file ITR-4 and skip books and audit. You can declare a higher profit if you wish; declaring lower means keeping books and getting audited. You meet it as a freelancer or small trader from your first return. What it means for you: advance tax is a single instalment by 15 March, and opting out of 44AD locks you out for five years.
How Presumptive taxation (44AD and 44ADA) works
Section 44AD lets a resident individual, Hindu undivided family or partnership firm (not an LLP) running any business other than agency, commission or goods transport declare 8% of turnover as profit, 6% for receipts through account payee cheque, bank transfer or digital modes received by the return due date, provided turnover is up to ₹2 crore, or up to ₹3 crore when at least 95% of receipts are non-cash. All deductions, including depreciation, are deemed allowed.
Section 44ADA covers residents in the notified professions (legal, medical, engineering, architecture, accountancy, technical consultancy, interior decoration, film artists, company secretaries and information technology professionals) with gross receipts up to ₹50 lakh, or ₹75 lakh with 95% non-cash receipts, and deems 50% as profit. Section 44AE covers owners of up to ten goods vehicles at a fixed amount per vehicle per month. In each case a higher profit can be declared voluntarily.
The cost of the scheme is in the exits. A business that declares below 8% or 6%, or opts out of 44AD in any year after using it, must keep books, get a tax audit under 44AB if income exceeds the basic exemption, and stays out of 44AD for the next five years. Professionals under 44ADA face the books and audit requirement in the year they declare below 50% but no five-year bar. Advance tax is a single payment by 15 March, and the return is ITR-4.
A Surat trader has turnover of ₹1.8 crore in 2025-26, of which ₹1.5 crore came through bank transfers by the July due date and ₹30 lakh in cash. He declares 6% of ₹1.5 crore (₹9 lakh) plus 8% of ₹30 lakh (₹2.4 lakh), a profit of ₹11.4 lakh, pays tax at slab rates, and files ITR-4 without an audit. Had his actual margin been 3%, declaring ₹5.4 lakh would have required books, an audit and five years outside the scheme.
Mistakes we see with Presumptive taxation (44AD and 44ADA)
- Running a commission agency or a brokerage under 44AD, which the section excludes, so the return is defective and actual profit becomes taxable.
- Counting cash receipts as digital because they were later deposited in the bank, when the test is the mode in which the customer paid.
- Opting out of 44AD in a bad year to claim a loss, then being unable to use it when margins recover, because of the five-year lock.
- Assuming 44ADA covers every consultant, when it is limited to the notified professions and a marketing or management consultant falls under 44AD instead.
Last updated 19 October 2026. Checked against the MCA, GST, Income-tax and Trade Marks rules in force for October 2026.
Where you will meet this term
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- Partnership FirmFor two or more people starting a small trading, family or services business with the simplest possible setup.from ₹2,999
Questions founders ask about Presumptive taxation (44AD and 44ADA)
Can a company use presumptive taxation?
No. Sections 44AD and 44ADA are limited to resident individuals, Hindu undivided families and partnership firms (44ADA to individuals and firms). Companies and LLPs compute actual profit with books of account, and the usual audit limits apply.
Do I still need GST registration under presumptive tax?
Yes, the two are unrelated. GST registration depends on aggregate turnover crossing ₹40 lakh for goods or ₹20 lakh for services, or on interstate or e-commerce supply. Many 44AD businesses are GST-registered and the return asks for the GSTIN and GST turnover.
Can I claim expenses or depreciation on top of the presumptive profit?
No. The presumptive figure is deemed to be after all expenses and depreciation, and the written-down value of assets is treated as if depreciation was claimed each year. Chapter VI-A deductions such as 80C and 80D remain available under the old regime, because they are deductions from total income, not business expenses.