Presumptive Taxation for Small Businesses and Professionals: 44AD and 44ADA

Presumptive taxation lets small businesses and professionals pay tax on a fixed percentage of their turnover or receipts, without keeping detailed books. It's simple, but it has conditions. This guide explains it.

Note: this describes the rules under the Income-tax Act, 1961 for FY 2025-26. The Income-tax Act, 2025 applies from tax year 2026-27, with renumbered provisions.

For Small Businesses (Section 44AD)

• Available to resident individuals, HUFs and partnership firms (not LLPs).
• Turnover limit: ₹2 crore, or ₹3 crore if cash receipts are no more than 5% of total receipts.
• Deemed profit: 8% of turnover, or 6% of turnover received through banking or digital channels.
• You can declare higher profit if it's actually higher.

For Professionals (Section 44ADA)

• Available to resident individuals and partnership firms (not LLPs) in specified professions — like legal, medical, engineering, architecture, accountancy, technical consultancy and interior decoration.
• Receipts limit: ₹50 lakh, or ₹75 lakh if cash receipts are no more than 5% of total receipts.
• Deemed income: 50% of gross receipts.

Advantages

• No need to maintain detailed books of account.
• No tax audit if you declare at least the deemed rate.
• Advance tax can be paid in a single instalment by 15 March.

Trade-offs

• No separate deduction for business expenses — they're assumed to be covered.
• If actual profit is lower, you pay more tax than necessary.
• For businesses, if you opt out after using the scheme, you can't return to it for the following five years, and a tax audit may apply if income exceeds the exemption limit.

Who It Suits

Small businesses and professionals whose actual profit margin is close to or above the deemed rate, and who value simplicity.

Getting Help

Think Filing compares presumptive and regular taxation for small businesses and professionals, and files their returns.