Presumptive Taxation (Section 44AD/44ADA)
A simplified scheme letting small businesses and professionals declare a fixed percentage of turnover as taxable profit, without maintaining detailed books or facing a mandatory tax audit.
In short
- Section 44AD: businesses up to ₹2 crore turnover (₹3 crore with mostly digital receipts) declare 6-8% of turnover as profit.
- Section 44ADA: specified professionals up to ₹50 lakh receipts (₹75 lakh with mostly digital receipts) declare a flat 50% of receipts as profit.
- No requirement to maintain detailed books of account or undergo a tax audit, as long as declared profit meets or exceeds the prescribed rate.
- Declaring a lower profit forfeits that exemption and requires full books plus a tax audit instead.
- The Income Tax Act, 2025 folds both sections into a consolidated Section 58, unchanged in substance.
Presumptive taxation lets eligible small businesses (Section 44AD) and specified professionals like doctors, lawyers, and chartered accountants (Section 44ADA) declare a prescribed percentage of their turnover or gross receipts as taxable profit, instead of computing actual profit from detailed books of accounts. For businesses, the presumptive rate is 8% of turnover, or 6% for the portion received through banking or digital channels, up to a ₹2 crore threshold (₹3 crore if cash receipts stay within 5% of the total). For specified professionals, it's a flat 50% of gross receipts, up to ₹50 lakh (₹75 lakh under the same 5%-cash condition).
The appeal is largely compliance simplicity: businesses and professionals under this scheme are generally exempt from maintaining detailed books of account and from a mandatory tax audit, provided they declare profit at or above the prescribed rate and stay within the eligibility limits. The tradeoff is that you're taxed on the presumptive percentage even if your actual profit margin is lower, so it suits businesses whose real margins are close to or above the presumptive rate more than those with genuinely thin margins. Under the Income Tax Act, 2025, Sections 44AD and 44ADA are consolidated into a single Section 58, with the same thresholds and rates carried over unchanged. A full walkthrough, including the 5-year lock-out for opting out and how advance tax works differently here, is in our guide to presumptive taxation.
Also referred to as: 44AD, 44ADA, presumptive income scheme.
Frequently asked questions
Who can use Section 44AD?
Resident individuals, HUFs, and partnership firms (other than LLPs) running most kinds of business, with turnover up to ₹2 crore, or ₹3 crore if cash receipts don't exceed 5% of the total.
Who can use Section 44ADA?
Resident individuals and partnership firms in specified professions, such as legal, medical, engineering, architectural, accountancy, and technical consultancy, with gross receipts up to ₹50 lakh, or ₹75 lakh under the same 5%-cash condition.
Can I declare a lower profit than the presumptive rate?
Only if you maintain full books of account and undergo a tax audit under Section 44AB. Declaring at or above the presumptive rate is what lets you skip both.
Disclaimer
This glossary entry is for general informational purposes only and does not constitute professional tax, legal, or financial advice. Rules and rates change, so consult a qualified Chartered Accountant for advice specific to your situation.