Section 44ADPresumptive Taxation for Small Businesses
Section 44AD lets an eligible small business declare a fixed percentage of turnover as its income, skipping detailed books and the tax audit that would otherwise follow.
In short
- You declare a fixed percentage of turnover as profit instead of computing actual profit. A lower percentage applies to receipts through banking or electronic channels, which is a deliberate incentive against cash.
- Opting in removes the requirement to maintain detailed books under Section 44AA and the tax audit under Section 44AB.
- It is a scheme with a lock-in. Opting out after opting in bars you from the scheme for a run of subsequent years, and in those years the audit requirement can return at much lower turnover.
- Declaring more than the deemed percentage is always allowed. Declaring less is what triggers the compliance burden the scheme was meant to remove.
- Advance tax for a 44AD assessee is due as a single instalment rather than four.
- Section 44AD has no standalone successor under the Income-tax Act, 2025. It is Serial No. 1 of the table in Section 58(2), a single section that also absorbs Section 44AE at Sl. No. 2 and Section 44ADA at Sl. No. 3, so a bare citation to Section 58 does not identify which scheme is meant.
Who it applies to
- Resident individuals, Hindu Undivided Families, and partnership firms (but not Limited Liability Partnerships)
- Businesses whose turnover stays within the prescribed ceiling for the year
- Businesses other than those specifically excluded, such as agency businesses and those earning commission or brokerage
How it works
Section 44AD exists because the cost of compliance does not scale down neatly. A trader with modest turnover would spend a meaningful share of their profit on bookkeeping and audit fees purely to prove a number the department could reasonably approximate. So the Act offers a bargain: declare a set percentage of turnover as your income, and in exchange the department stops asking to see how you arrived at it.
The percentages and the turnover ceiling are the parts that move with Finance Acts, and there are now two of each: a higher deemed rate for cash receipts and a lower one for money received through a bank account or electronic mode, plus a raised turnover ceiling for businesses that keep cash on both sides of the ledger within a small share of the total. The worked numbers, including how the two rates combine within one business, are in the detailed guide.
The lock-in is the clause that catches people. Section 44AD(4) provides that if you declare under the scheme and then in a later year declare profits below the deemed rate, you are shut out of the scheme for the following five assessment years. Worse, in those years Section 44AB can require a tax audit even though your turnover is nowhere near the ordinary audit threshold, because 44AB picks up assessees in exactly that position whose income exceeds the basic exemption limit. Treating 44AD as something you can drift in and out of year to year is the single most expensive misreading of the section.
It is also worth being clear about what the scheme does not do. It presumes your income; it does not exempt it. The deemed figure is added to your other income and taxed at the slab rates that apply to you, and a business that genuinely earns more than the deemed rate is expected to declare the higher figure rather than treat the percentage as a ceiling.
Professionals are covered by a separate provision, Section 44ADA, with a different rate and a different ceiling. Businesses in the plying, hiring, or leasing of goods carriages have their own scheme under Section 44AE.
Also searched as: presumptive income, presumptive taxation for business, 44AD scheme, 8 percent scheme, Section 44AD, Section 58(2), Table Sl. No. 1.
Frequently asked questions
Can an LLP use Section 44AD?
No. The section covers resident individuals, HUFs, and partnership firms, and Limited Liability Partnerships are specifically excluded. An LLP has to compute actual profits and maintain books accordingly.
Which ITR form does a 44AD assessee file?
ITR-4 (Sugam) is the form designed for presumptive income, provided the assessee meets its other conditions. If you have capital gains, more than one house property, foreign assets, or income that takes you outside Sugam's scope, you move to ITR-3 while still declaring presumptively.
Do I still need to keep any records under 44AD?
The section relieves you of the detailed books required by Section 44AA, but you still need to be able to substantiate turnover itself, since the whole computation is a percentage of it. Bank statements, sales invoices, and GST returns are what a scrutiny will ask for.
Can I declare income higher than the presumptive rate?
Yes, and you should where it reflects reality. The deemed percentage is a floor for the scheme's protection, not a ceiling on what you may declare. Declaring below it is what triggers the five-year lock-out and the audit exposure.
Worked detail on this section
Current rates, limits, and step-by-step process live in these guides, which are kept updated as the law moves.
Forms involved
Related sections
Primary sources
Disclaimer
This page explains what a statutory provision does in general terms. It is not a substitute for the bare act, and it is not professional tax or legal advice. Rates, thresholds, and limits change with each Finance Act, and applicability turns on facts specific to you. Confirm anything that affects a real filing with a qualified Chartered Accountant.