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    Section 44AD presumptive taxation

    The simplest way for a small business to be taxed, and the rules that catch people out

    Section 44AD lets a resident small business declare a deemed profit of 8% of turnover, or 6% on receipts taken digitally or through the banking system, with no detailed books and no tax audit within the limits. It applies up to Rs 2 crore of turnover, rising to Rs 3 crore where cash receipts are 5% or less. It is for businesses, not professions (professionals use Section 44ADA), and once you opt in, opting out locks you out of presumptive taxation for the next five years.

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    Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact Income Tax Department. Read our editorial scope →

    How Section 44AD works

    Instead of computing actual profit, you declare a fixed percentage of turnover as income: 8% generally, or 6% on the portion of receipts received by cheque, bank transfer, UPI, card or other digital mode. You do not maintain detailed books of account for income-tax purposes and you are outside the tax-audit requirement, within the limits. Depreciation is treated as already allowed within the deemed profit, so you do not claim it separately, though the asset's written-down value still reduces for any future sale.
    tipTake payment digitally. Keeping cash receipts to 5% or less of turnover gives you both the higher Rs 3 crore limit and the lower 6% deemed-profit rate instead of 8%.

    Who can use it (and who cannot)

    Section 44AD is for resident individuals, HUFs and partnership firms (not LLPs or companies) carrying on an eligible business. It does not apply to professions, a professional uses Section 44ADA at 50%. It also excludes certain businesses such as agency, commission and brokerage, and the business of plying, hiring or leasing goods carriages (which has its own scheme, Section 44AE). The most common error is a trade or coach being placed on the 50% professional scheme when they are a business that belongs here at 6 or 8%.
    • Resident individual, HUF or partnership firm (not LLP or company)
    • Eligible business (not a profession, agency, commission or goods-carriage business)
    • Turnover within Rs 2 crore (Rs 3 crore if cash <=5%)
    • Willing to declare at least the deemed 6 or 8% of turnover

    The 5-year lock-out (Section 44AD(4))

    If you opt into Section 44AD and then in a later year declare profits below the deemed rate (opting out), you are barred from using presumptive taxation under 44AD for the next five assessment years, and in those years you must keep books and get a tax audit if your income exceeds the basic exemption. This lock-out is specific to 44AD (business); it does not apply to 44ADA (professions), where you can move in and out year to year freely. So a business owner should treat the decision to leave 44AD as a five-year commitment.
    warningOpting out of 44AD by declaring lower profits triggers a five-year lock-out plus books and audit. This 44AD(4) lock-out does NOT exist for professionals on 44ADA.

    Calculators

    Companion guides

    Source / notes

    • Income-tax Act 1961 s.44AD (consolidated into Income-tax Act 2025 s.58)
    • Income-tax Act 1961 s.44AD(4) (five-year lock-out)
    • Income-tax Act 1961 s.44AA/44AB (books and audit)

    Frequently asked questions

    Is the deemed rate 6% or 8%?+
    Both apply, to different receipts. The deemed profit is 6% on turnover received digitally or through the banking system, and 8% on other receipts (mainly cash). So if all your receipts are digital, your whole deemed profit is at 6%. Keeping cash to 5% or less also unlocks the higher Rs 3 crore turnover limit.
    Can a professional use Section 44AD?+
    No. Professionals use Section 44ADA (50% of receipts). Section 44AD is for businesses. The frequent mistake is the reverse, a business such as a trade, coaching, fitness or food business being pushed onto 44ADA at 50% when it belongs in 44AD at 6 or 8%. A client deducting 194J TDS does not make a business a profession.
    Do I have to keep books under 44AD?+
    Not detailed books, within the limits. That is the main attraction: you declare the deemed 6 or 8% and are outside the tax-audit requirement. But if you declare profit below the deemed rate, or your turnover exceeds the limit, the books-and-audit requirements (and, after opting out, the five-year lock-out) come into play.
    What is the five-year lock-out?+
    If you use Section 44AD and then opt out by declaring profits below the deemed rate, you cannot use presumptive taxation under 44AD for the next five assessment years, and must keep books and get an audit in those years if your income is taxable. This lock-out under Section 44AD(4) applies only to businesses, not to professionals on 44ADA.

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