Pending professional review. This content was drafted with Claude from official sources and has not yet been reviewed by an ArthaKara professional. Verify against the official sources before relying on it.
Introduction
Presumptive taxation lets small businesses and specified professionals declare income at a fixed percentage of turnover instead of maintaining detailed books.
Detailed explanation
- Section 44AD (business): income deemed at 8% of turnover, or 6% for receipts through banking or digital channels. Limit Rs 2 crore, increased to Rs 3 crore where cash receipts do not exceed 5% of total receipts.
- Section 44ADA (profession): income deemed at 50% of gross receipts for specified professions. Limit Rs 50 lakh, increased to Rs 75 lakh where cash receipts do not exceed 5%.
Applicability
Resident individuals, HUFs and partnership firms (not LLPs) for 44AD; resident individuals and firms (not LLPs) carrying on specified professions for 44ADA.
Relevant statutory provisions
Sections 44AD and 44ADA, Income-tax Act, 1961; the corresponding presumptive provisions (section 58) of the Income-tax Act, 2025 from Tax Year 2026-27.
Practical example
A consultant with gross receipts of Rs 40 lakh, all by bank transfer, may declare Rs 20 lakh under 44ADA and pay advance tax in one instalment by 15 March.
Important conditions and exceptions
- Those opting out of 44AD after using it face a five-year lock-out.
- Declaring lower income than the deemed percentage requires books and a tax audit if total income exceeds the basic exemption limit.
Common mistakes
- Applying 44AD to commission or brokerage income
- Missing the single advance tax instalment by 15 March
Frequently asked questions
Do I need to maintain books? Not under the presumptive scheme, but keep records of turnover and receipts.
Official sources
Information published by ArthaKara Consulting Services is intended for general educational and informational purposes. It is based on the statutory provisions and official information referenced on the respective page as of its stated verification date. Laws, rules, notifications and regulatory interpretations may change. Readers should independently verify the applicable provisions and seek professional advice before taking action. ArthaKara is an independent professional information and consulting platform and is not a government website or government-endorsed portal.