Under 44AD of income tax act, a small business can declare profit as a flat 8% of turnover, or 6% on the part received through bank or digital modes, and pay tax on that figure without keeping full books. It is open to resident individuals, HUFs and partnership firms (not LLPs) with turnover up to ₹2 crore, or up to ₹3 crore if cash receipts stay at 5% or less.
A kirana shop, a hardware dealer or a small contractor can use it. Professionals such as doctors and lawyers cannot; their scheme is 44ADA. Every figure below is for FY 2025-26, under the 1961 Act. For tax year 2026-27 onward, the scheme shifts to section 58 of the new 2025 Act.
Quick facts
Deemed profit
8% of turnover; 6% on receipts by bank, UPI, card or other digital modeTurnover limit
₹2 crore; ₹3 crore if cash receipts are 5% or lessWho can opt
Resident individual, HUF, partnership firm other than an LLPBooks of account
Not required for the business under the schemeAdvance tax
Whole amount by 15 MarchLock-in
Leave within five years and you are out for the next five (44AD(4))Under the 2025 Act
Section 58, together with the 44ADA and 44AE schemes
Rates and limits under 44AD of income tax act
| Item | Rule |
|---|---|
| Receipts by account payee cheque, bank transfer, UPI, card or other digital mode | At least 6% of those receipts |
| Receipts in cash (or bank receipts that come in after the due date of the return) | At least 8% of those receipts |
| Turnover limit, normal case | ₹2 crore |
| Turnover limit if cash receipts stay within 5% of turnover | ₹3 crore |
| Higher profit | Allowed; you can always declare more than the deemed figure |
The deemed profit is final. No further deduction is allowed for rent, wages, depreciation or any other business cost, because the flat rate already assumes them. You can still claim deductions such as 80C or 80D in the old regime against total income.
Who can use section 44AD and who cannot
| Can use 44AD | Cannot use 44AD |
|---|---|
| Resident individual running a shop, trading or works business | Company or LLP |
| Resident HUF | Non-resident |
| Partnership firm (not an LLP) | Doctors, lawyers, CAs, engineers and other professions listed in section 44AA(1) |
| Small civil or labour contractor | Commission, brokerage or agency business |
| Manufacturer or reseller within the turnover limit | Goods carriage business, which has its own scheme under 44AE |
The test is per business. A person who is a salaried employee and also runs a weekend shop can apply 44AD to the shop and declare salary in the normal way.
Worked example: a garment shop on presumptive tax
Facts for FY 2025-26. Meena, a resident individual, runs a garment shop. Turnover is ₹1,50,00,000: ₹1,20,00,000 came by UPI and card, and ₹30,00,000 in cash.
Step 1, limit check. Cash is 20% of turnover, so the ₹3 crore limit is not open, but ₹1.5 crore is within ₹2 crore. She can use 44AD.
Step 2, deemed profit. 6% of ₹1,20,00,000 is ₹7,20,000. 8% of ₹30,00,000 is ₹2,40,000. Business income is ₹9,60,000.
Step 3, tax. With no other income, taxable income under the new regime is ₹9,60,000. Slab tax is ₹20,000 plus ₹16,000, which is ₹36,000, and the section 87A rebate wipes it out because income is below ₹12 lakh. Tax payable is nil.
Had the same shop received ₹2.6 crore with only ₹7,80,000 in cash (3%), the ₹3 crore limit would apply, and the deemed profit would be 6% of ₹2,52,20,000 plus 8% of ₹7,80,000, which comes to ₹15,75,600.
Section 44AD(4) of income tax act: the five-year rule
Once you declare income under 44AD, you are expected to stay. If in any of the next five years you declare profit below the presumptive rate, you lose the scheme for the five years that follow that year. In those years you must keep books, and if your total income goes above the basic exemption limit, you also need a tax audit under clause (e) of section 44AB.
Example: a dealer opts in for FY 2023-24 and FY 2024-25, then shows 3% profit for FY 2025-26. He is out of 44AD from FY 2026-27 through FY 2030-31. Showing a higher profit than 8% or 6% never triggers this rule; only a lower one does.
Section 44AE of income tax act for truck owners
| Vehicle | Deemed income |
|---|---|
| Heavy goods vehicle (gross weight above 12,000 kg) | ₹1,000 per tonne of gross vehicle weight for each month or part month owned |
| Any other goods vehicle | ₹7,500 for each month or part month owned |
The scheme is open to a transport owner whose fleet never goes beyond ten goods vehicles during the year. A tempo owner with two light vehicles held all year declares ₹7,500 x 12 x 2, which is ₹1,80,000, whatever the trucks actually earned.
Advance tax, ITR form and filing date
Under 44AD you pay all advance tax in one go by 15 March, once the year's tax, net of TDS, reaches ₹10,000 or more. Pay late and interest under section 234C applies. See advance tax dates for the full schedule.
Most individuals, HUFs and firms on 44AD file ITR-4 Sugam if total income does not exceed ₹50 lakh, and ITR-3 otherwise. For AY 2026-27 the department reminded non-audit business taxpayers that their due date was 31 August; the belated return window runs to 31 December. File on the e-filing portal.
Section 58 of income tax act 2025 and the presumptive scheme
| Point | FY 2025-26 | Tax year 2026-27 |
|---|---|---|
| Law | Section 44AD, 1961 Act | Section 58, 2025 Act |
| Other schemes | 44ADA and 44AE are separate sections | All three are rows of one table in section 58 |
| Rates and limits | 8% or 6%; ₹2 crore or ₹3 crore | Carried over |
| Year label | Previous year, filed in AY 2026-27 | Tax year |
Commentary on section 58 notes that the core rates and limits did not change. Check the eligibility conditions in the new section before relying on the scheme for tax year 2026-27, since it is drafted per taxpayer rather than per business.
Slips that upset a 44AD return
| Problem | Remedy |
|---|---|
| Claiming rent or salary on top of the 8% profit | The flat rate covers all business costs; remove them |
| Using 44AD for consultancy fees | Professional fees go under 44ADA, not 44AD |
| Counting a late bank receipt at 6% | Only digital receipts received by the return due date get 6% |
| Dropping to a lower profit after two years | Read 44AD(4) first; the five-year bar and audit may follow |
| An LLP filing under 44AD | LLPs are excluded; use normal books and rates |
We explain the presumptive scheme in general terms here, not for any one business. Law and forms are revised now and then. Before you file, check the latest position with your chartered accountant, or look it up on the e-filing portal yourself.
Sources we checked
- Income-tax Act, 1961, section 44AD
- Income-tax Act, 1961, section 44AE
- Income-tax Act, 2025, section 58
- Income-tax Act, 1961, section 44AB
Frequently asked questions
What is 44AD in income tax?
It is a presumptive scheme for small businesses. Profit is taken as 8% of turnover, or 6% of digital receipts, and tax is paid on that without keeping full books.
What is the 44AD of income tax act limit for FY 2025-26?
Turnover must be ₹2 crore or less. The limit rises to ₹3 crore if cash receipts stay within 5% of turnover.
Can a professional use sec 44AD of income tax act?
No. Professions listed in section 44AA(1), such as medical, legal and accountancy, are excluded. They can use 44ADA, which deems 50% of receipts as profit.
What happens under section 44AD(4) if I show lower profit?
You cannot use 44AD for the next five years after the year of lower profit. You must keep books and get a tax audit if total income crosses the exemption limit.
Which scheme sits in section 58 of income tax act 2025?
Section 58 holds presumptive taxation under the new Act. It brings the 44AD, 44ADA and 44AE schemes into one table and applies from tax year 2026-27.
Is GST registration linked to 44AD?
No. 44AD is an income tax scheme. GST registration depends on GST law and its own limits.