Section 44AD & 44ADA — Presumptive Taxation for Small Businesses & Professionals (India 2026)

1Section 44AD — for eligible businesses

Eligible for: resident individuals, HUFs, and partnership firms (not companies or LLPs) whose turnover does not exceed ₹3 crore (if at least 95% of receipts and payments are digital — otherwise ₹2 crore). Ineligible: commission agents, agency businesses, professionals covered by § 44ADA. The deemed profit rate is 8% of gross turnover (6% for digital receipts). No deductions are separately allowed — the deemed profit is the final profit for tax purposes. No need to maintain books under § 44AA or get an audit under § 44AB.

2Section 44ADA — for specified professionals

Covers: doctors (physicians, surgeons), lawyers, architects, engineers, accountants, interior decorators, technical consultants, and any other profession notified by CBDT. Eligible if gross receipts are ≤ ₹75 lakh (95% digital — otherwise ₹50 lakh). Deemed profit: 50% of gross receipts. No books or audit required below the threshold. This is extremely popular for freelancers and independent professionals since the effective tax rate on actual (higher) margin is lower — e.g. a doctor earning ₹30 lakh declares ₹15 lakh as profit.

3When to opt for presumptive taxation

• Your actual profit margin is above 8% (44AD) or 50% (44ADA) — you pay less tax on the deemed amount
• You want to avoid maintaining detailed books (particularly useful for sole practitioners)
• You want to file ITR-4 (Sugam) — the simplest business return
• Your business has mostly cash or digital receipts and low complexity

4When NOT to use presumptive taxation

• Your actual profits are below 8% (44AD) or 50% (44ADA) — you'd pay MORE tax than on actuals
• You have carry-forward losses you want to offset
• You have significant deductions (interest on business loan, depreciation on plant) that would reduce taxable profit below the deemed rate
• You opted out of 44AD in a previous year — then you're locked out for 5 years under § 44AD(4)

5How to declare — ITR-4 (Sugam)

• File ITR-4 (not ITR-3) when declaring under 44AD or 44ADA
• Enter gross turnover / receipts and the deemed profit percentage
• No need to attach a profit & loss account or balance sheet
• Still required: TDS compliance (deduct TDS on payments if applicable), GST registration if turnover crosses ₹40 lakh, advance tax under § 207 (4 instalments during the year)