Section 44AD — Presumptive Tax

How presumptive tax under 44AD works

Section 44AD lets a resident individual, HUF or partnership firm running an eligible business declare profit at 8% of turnover for cash receipts and 6% for digital receipts (UPI, NEFT, RTGS, IMPS, cheque). No books of account, no audit, no expense receipts — just declare turnover, apply the presumption, and pay tax on the assumed profit. The relief is available up to ₹2 crore turnover, or ₹3 crore if digital receipts are ≥ 95% (Finance Act 2023).

Worked example for FY 2025-26

A Surat textile trader with ₹80 lakh turnover — ₹60 lakh via UPI/RTGS and ₹20 lakh in cash — declares (60L × 6%) + (20L × 8%) = ₹5.2 lakhpresumed profit. Under the new tax regime with the 87A rebate, tax up to ₹12 lakh is zero, so the trader pays nothing — versus maintaining books and getting audited at this turnover if not opting in.

When to use 44AD

• Kirana shops, traders, manufacturers, contractors below ₹2 / ₹3 crore turnover
• Small e-commerce sellers on Amazon, Flipkart, Meesho where margins are stable
• To skip the 44AB tax audit cost (₹15k–₹40k CA fee)
• When actual profit is above the 6% / 8% benchmark anyway

Note: once you opt in, you must stay in for 5 consecutive years. Exit early and you lose 44AD for the next 5 years and must maintain books + audit. Professionals (doctors, lawyers, IT consultants) should use Section 44ADA instead, which presumes 50% profit. Plan your final tax bill via the income tax calculator.