Section 44AD Presumptive Taxation FY 2025-26: Turnover Limit, 6% and 8% Rates and the 5-Year Lock
Section 44AD allows a resident individual, HUF or partnership firm with business turnover up to ₹2 crore, or ₹3 crore if at least 95% of receipts are digital, to declare profit at 8% of turnover (6% for amounts received digitally) without maintaining books of account or getting a tax audit. Once you opt out after using it, you cannot return for 5 years. Advance tax is paid in one instalment by 15 March.
Key facts, FY 2025-26
- Turnover limit
- ₹2 crore, or ₹3 crore if cash receipts are 5% or less of total receipts
- Presumptive rate
- 8% of turnover; 6% on receipts by account payee cheque, bank transfer, UPI or card
- Who can opt
- Resident individuals, HUFs and partnership firms (not LLPs) carrying on an eligible business
- Not eligible
- Professionals under 44AA(1), commission or agency income, plying goods carriages (44AE), LLPs, companies
- Opt-out lock
- Leave the scheme and you cannot re-enter for 5 assessment years, with books and audit required if income exceeds the exemption limit
- Advance tax
- Single instalment of 100% by 15 March
How it works
Section 44AD of the Income-tax Act 1961 is a simplification scheme for small businesses. Instead of preparing a profit and loss account, you declare a fixed percentage of your turnover as profit and pay tax on that at your slab rates. The department accepts the presumed profit and does not ask for books, and the tax audit requirement under section 44AB does not apply as long as you stay within the turnover limit.
The presumed rate is 8% of gross turnover or receipts. It drops to 6% for the portion received by account payee cheque, bank draft, electronic clearing, UPI, card or any other prescribed digital mode, provided the money is received during the year or before the return due date. Cash sales stay at 8%. You may declare a higher profit if you like, but you cannot declare lower without keeping books and getting an audit.
The turnover ceiling is ₹2 crore. From FY 2023-24 it is ₹3 crore if cash receipts during the year are 5% or less of total receipts. The presumed profit is treated as the net figure: all expenses including depreciation and, for firms, partner salary and interest, are deemed already deducted. Deductions under Chapter VI-A such as 80C and 80D remain available under the old regime, and you can choose either regime.
The scheme comes with a lock. If you use 44AD in a year and then declare profit below the presumed rate in any of the next five years, you lose the scheme for five assessment years from that year and must keep books and get audited if your income is above the exemption limit. Choose the scheme with a five-year view, not year by year. Partnership firms can use the scheme but LLPs cannot, and a firm on 44AD cannot deduct partner salary or interest separately, since the presumed profit already absorbs them.
| Item | FY 2025-26 rule |
|---|---|
| Eligible taxpayer | Resident individual, resident HUF, resident partnership firm (not LLP) |
| Eligible business | Any business except goods carriage (44AE), agency or commission income, and professions listed in 44AA(1) |
| Turnover limit | ₹2 crore; ₹3 crore if cash receipts are 5% or less |
| Presumed profit | 8% of turnover; 6% on digital receipts |
| Books of account | Not required |
| Tax audit | Not required within the limit |
| Return form | ITR-4 (Sugam); ITR-3 if you also have capital gains or more than one house property |
| Advance tax | 100% by 15 March, interest under 234C only if missed |
| Other deductions | Chapter VI-A allowed under the old regime; no separate expense claim |
Worked example: Retail shop in Panchkula, turnover ₹1.20 crore, old regime
- Receipts through UPI, card and bank
- ₹90,00,000
- Cash receipts
- ₹30,00,000
- Presumed profit on digital receipts at 6%
- ₹5,40,000
- Presumed profit on cash receipts at 8%
- ₹2,40,000
- Business income under 44AD
- ₹7,80,000
- Less 80C investments
- ₹1,50,000
- Taxable income
- ₹6,30,000
- Tax including cess (old regime)
- ₹40,040
Common mistake: treating 44AD as optional every year
Traders who show 8% one year and a lower actual profit the next, without an audit, trigger the five-year exclusion and a defective-return or audit notice. Equally, showing 8% when your real margin is 20% is legal but unnecessary if you have clean books; the section fixes the floor, not the ceiling. Decide based on your real margin and how long you expect to stay under ₹2 crore.
What to do next
Total your receipts for 1 April 2025 to 31 March 2026 from bank statements, UPI and card settlement reports and cash register, keeping the digital and cash figures separate because they carry different rates. Check that the GST turnover in GSTR-3B matches, since the AIS reports it. File ITR-4 by the non-audit due date. If turnover is likely to cross ₹2 crore, or you are a partner in an LLP, or you earn commission, the scheme does not apply and you will need books and possibly a tax audit signed by an empanelled Chartered Accountant. An expert-assisted business return checks eligibility before the form is chosen, and reconciles the ITR turnover with GST returns so that the two never disagree in the AIS.
Section 44AD: questions
What is the turnover limit for section 44AD in FY 2025-26?
₹2 crore. It rises to ₹3 crore if cash receipts during the year are not more than 5% of total receipts. Above the applicable limit you must keep books and, in most cases, get a tax audit.
What is the presumptive rate under 44AD?
8% of gross turnover or receipts, reduced to 6% for the portion received through account payee cheque, bank transfer, UPI, card or other digital mode by the return due date. You can declare a higher profit but not a lower one without an audit.
Who cannot opt for section 44AD?
LLPs and companies, non-residents, professionals covered by section 44AA(1) such as doctors, lawyers and architects, anyone earning commission or brokerage, anyone in the goods carriage business under 44AE, and anyone who claimed deductions under sections 10A to 10BA or 80H to 80RRB.
What is the 5-year rule under 44AD?
If you opt for 44AD and then declare lower profit in any of the following five years, you cannot use the scheme for the next five assessment years. During that period you must keep books and get a tax audit if your income exceeds the basic exemption limit.
Is tax audit required under section 44AD?
No, as long as turnover is within the limit and you declare profit at 8% or 6% or higher. Audit becomes necessary if you declare lower profit and your total income exceeds the exemption limit, or if turnover crosses the limit.
When is advance tax due for 44AD taxpayers?
In one instalment of 100% by 15 March of the financial year, so 15 March 2026 for FY 2025-26. The four-instalment schedule does not apply. Interest under section 234C is charged only if the March instalment is short.
Which ITR form is used for 44AD?
ITR-4 (Sugam) for individuals, HUFs and firms with presumptive income, one house property and no capital gains. If you also have capital gains, foreign assets or more than one house property, use ITR-3 and report the presumptive income in Schedule BP.
Can I claim expenses or depreciation over the presumed 8%?
No. The presumed profit is deemed to be after all expenses and depreciation. Chapter VI-A deductions such as 80C, 80D and 80CCD(1B) are still available under the old regime because they are deducted from total income, not from business profit.
Related sections and forms
- Section 44ADASection 44ADA allows a resident individual or partnership firm in a specified profession with gross receipts up to ₹50 lakh, or ₹75 lakh if at least 95% of receipts are digital, to declare 50% of receipts as taxable income without maintaining books or getting a tax audit. It covers legal, medical, engineering, architecture, accountancy, technical consultancy, interior decoration, film artists, company secretaries and IT professionals. F&O trading is a business, not a profession, and is not eligible.
- ITR-4 (Sugam)ITR-4, called Sugam, is the presumptive taxation return for resident individuals, HUFs and partnership firms (not LLPs) with total income up to ₹50 lakh who declare business profit at 8% or 6% of turnover under section 44AD, professional income at 50% of receipts under 44ADA, or goods-carriage income under 44AE. It also takes salary, one house property, other sources and small 112A gains. No balance sheet or profit and loss account is required, and the due date for AY 2026-27 is 31 July 2026.
- ITR-3ITR-3 is the return for individuals and HUFs who have income from a business or profession, including F&O and intraday trading, freelancing with books of account, proprietorships and partners receiving remuneration or interest from a firm. It contains every schedule in ITR-2 plus a profit and loss account, balance sheet and the tax audit fields. For AY 2026-27 it is due on 31 July 2026, or 31 October 2026 where a section 44AB audit applies.
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General information for FY 2025-26, not professional advice. Limits and dates change with each Budget; the updated date above is when this page was last checked. Disclaimer