Section 44AD lets an eligible small business declare 8% of turnover as profit — or 6% for receipts through banking/digital channels — without maintaining detailed books of accounts or a tax audit. It applies to a resident individual, HUF or partnership firm (not an LLP) with turnover up to ₹3 crore (₹2 crore if cash receipts and payments exceed 5%). You file the simple ITR-4 (Sugam) and pay 100% advance tax by 15 March.
The Income-tax Act, 2025 (effective 1 April 2026) merges Sections 44AD, 44ADA and 44AE into a single Section 58, using a serial-number table for business, professionals and transporters. The turnover limits and the 8%/6% presumptive rates are unchanged — only the section number and drafting change. "Section 44AD" remains the familiar reference for FY 2025-26.
Who Can Use Section 44AD?
Section 44AD is only for eligible assessees carrying on an eligible business. You qualify if all of the following hold:
- Resident Individual, HUF or Partnership Firm (LLPs are excluded)
- Turnover / gross receipts up to ₹3 crore (₹2 crore if cash > 5% of receipts & payments)
- Running a business — trading, retail, manufacturing or services
- Not carrying on a profession (professionals use Section 44ADA)
- Not a plying/hiring/leasing goods-carriage business under Section 44AE
- Not claiming deductions under sections 10AA or 80-IA to 80RRB in that year
The higher ₹3 crore limit applies only if cash receipts and cash payments are each within 5% of the total — i.e. the business is substantially digital. If cash exceeds 5%, the old ₹2 crore ceiling applies. Cheque/DD that is not account-payee is treated as cash for this test.
44AD vs 44ADA vs 44AE — Which Section Fits?
The three presumptive schemes cover different taxpayers. Section 44AD is for business; Section 44ADA is for professionals; 44AE is for goods transporters.
| Section | Applies to | Turnover / Receipts Limit | Presumed Profit |
|---|---|---|---|
| 44AD | Business (trading, mfg, services) | ₹3 Cr ₹2 Cr if cash > 5% | 8% cash / 6% digital |
| 44ADA | Specified professionals (doctor, CA, lawyer, engineer, architect) | ₹75 lakh | 50% of gross receipts |
| 44AE | Goods transporters (≤ 10 vehicles) | Per vehicle / month | ₹1,000/ton (heavy) or ₹7,500/month |
From AY 2026-27 all three sit inside a single Section 58 of the Income-tax Act, 2025 as serial-numbered rows. Limits and rates are unchanged.
Benefits & Trade-offs of 44AD
✓Consider 44AD if
- You want no books of accounts and no tax audit
- Your real margin is above 8%/6% (you save tax & effort)
- You prefer the simple ITR-4 (Sugam) over ITR-3
- Turnover is under ₹3 crore and mostly digital
!Be careful if
- Your actual profit is well below 8%/6% (you overpay tax)
- You want to claim a business loss or carry it forward
- You are an LLP, company, or a professional
- You may exit within 5 years — the lock-in bites
Not sure if 44AD or regular books saves you more? Get a quick review.
Talk to a Tax Expert →The 5-Year Lock-in Rule
Once you opt into 44AD, you are expected to continue for five consecutive years. If you declare presumptive income in a year and then opt out (declare lower actual profit) in any of the next five years, you are barred from 44AD for the following five assessment years. During that period you must maintain books under Section 44AA and get a tax audit under Section 44AB if income exceeds the basic exemption limit.
The lock-in is designed to stop taxpayers hopping in and out to game the system. Plan your entry — if you expect a genuinely low-margin or loss year soon, weigh whether 44AD is worth it, because leaving triggers audit and books for five years.
Deductions Under Section 44AD
The 8%/6% presumed profit is after all business expenses — rent, salaries, depreciation, interest and every other cost are deemed already allowed. You cannot separately deduct them again. The following still apply:
- Chapter VI-A deductions (80C, 80D, 80CCD etc.) — subject to the regime chosen; most are unavailable in the default new regime.
- Depreciation is deemed allowed — the asset's written-down value is reduced as if depreciation were claimed.
- From AY 2025-26, the Section 40(b) deduction for partner's remuneration and interest was withdrawn for presumptive firms — the presumed profit is final.
- You may always declare a higher profit voluntarily; there is no cap on the upside.
44AD shines when your true margin beats 8%/6% — you pay tax on the lower presumed figure and skip audit costs. If your genuine margin is 2-3%, presumptive tax can cost more than filing ITR-3 with real books. Run both numbers before you tick the 44AD box.
How 44AD Tax Is Computed
A retail trader with ₹80 lakh turnover, all digital, declares 6% as income; a cash-based trader on the same turnover declares 8%.
6% Digital business
8% Cash business
You then reduce eligible Chapter VI-A deductions (per your chosen regime) and pay tax on the balance at slab rates. There is no separate deduction for rent, salaries or other expenses — they are inside the 6%/8%.
Advance Tax & ITR-4 Filing
- File ITR-4 (Sugam) — the simplified return for presumptive income.
- Pay 100% of advance tax by 15 March — 44AD taxpayers skip the four-instalment schedule.
- No books of accounts under Section 44AA and no tax audit under Section 44AB, as long as you declare the presumptive profit.
- GST registration and returns are separate — 44AD is only about income tax.
Want your 44AD return and advance tax handled end-to-end?
Get ITR-4 Filing Help →- Section 44AD, Income-tax Act 1961: incometax.gov.in
- ITR-4 (Sugam) & e-filing: incometax.gov.in e-filing portal
- Section 58 (presumptive), Income-tax Act 2025 — effective AY 2026-27
- ₹3 crore limit: introduced Finance Act 2023; unchanged by Union Budget 2025
Disclaimer: This guide is general information based on the law and notifications in force when it was last updated. It is not professional advice for your case — rates, thresholds and due dates change, so check the current position or speak to our CA team before you act on it.