income tax
Published on 22 July 2025
Understanding Presumptive Income Under Section 44AD for AY 2025-26
A Practical Guide to Section 44AD: Presumptive Taxation for Small Businesses (AY 2025–26)
Running a small business in India comes with enough challenges—keeping up with tax compliance shouldn’t be one of them. That’s where Section 44AD of the Income Tax Act, 1961, steps in. This scheme is designed to ease the compliance burden for small business owners by letting them declare a fixed percentage of their turnover as income—without getting into the nitty-gritty of maintaining detailed books or getting an audit.
Who Can Opt for Section 44AD in AY 2025–26?
Not everyone qualifies for this scheme. You’ll need to tick all of these boxes:
Eligible Entities:
- Resident individuals
- Resident Hindu Undivided Families (HUFs)
- Resident partnership firms (but not LLPs)
Not Eligible If You Are:
- A Limited Liability Partnership (LLP)
- A non-resident
- A professional like a doctor, CA, lawyer, architect, designer, etc. (You’ll fall under Section 44ADA instead)
- Running a business based on commission, brokerage, or agency
- In the transport business involving goods carriages (that’s Section 44AE)
What Kind of Business Qualifies?
Only those running a regular eligible business—think trading, manufacturing, or retail—can use this section. If your work is based on professional skills or advisory, Section 44AD isn’t for you.
What’s the Turnover Limit?
Your total sales or turnover for FY 2024–25 (AY 2025–26) must stay within:
| Mode of Receipts | Turnover Limit |
|---|---|
| If 95% or more via digital | ₹3 crore |
| If significant cash usage | ₹2 crore (unchanged) |
So if you’re doing most of your business through digital payments—UPI, bank transfers, cards—you’re rewarded with a higher ceiling of ₹3 crore. This threshold was increased in Budget 2023 and kicks in from AY 2025–26.
How Is Presumptive Income Calculated?
Section 44AD assumes a fixed profit margin based on how you receive payments:
- 8% of turnover for cash transactions
- 6% if payments come via digital modes
You don’t need to show detailed expense breakdowns. You also can’t claim deductions for rent, salaries, depreciation, or anything else. However, depreciation is still considered for tax purposes when computing the written-down value of your assets.
No Books. No Audit. Less Headache.
If you opt for Section 44AD and your turnover is within limits, you:
- Don’t need to maintain formal books of account
- Don’t need to get your accounts audited under Section 44AB
This makes it ideal for solo entrepreneurs and shopkeepers who want to keep things simple and clean.
The Five-Year Rule You Must Know
There’s one major catch. If you choose Section 44AD in any year:
- You’re expected to stick with it for the next five consecutive years
- If you exit the scheme mid-way (say, in Year 3), you can’t come back to it for the next 5 years
Don’t Forget Advance Tax
Yes, even under presumptive tax, you need to pay advance tax. But there’s a relief—unlike regular businesses that pay in instalments, here you just need to pay the full 100% by March 15 of the financial year. Miss it, and interest under Sections 234B and 234C will apply.
What If You Want to Declare Lower Income?
Let’s say your actual business profit is less than 8% (or 6%). You can declare lower income—but only if:
- Your total income exceeds the basic exemption limit, and
- You’re willing to maintain regular books of accounts and get them audited
Quick Summary: Section 44AD for AY 2025–26
| Feature | Details |
|---|---|
| Who can opt | Individuals, HUFs, partnership firms (residents only) |
| Turnover limit | ₹3 crore (≥95% digital) / ₹2 crore (cash-heavy) |
| Presumptive income | 8% (cash), 6% (digital) of turnover |
| Need to maintain books? | No |
| Audit requirement? | No |
| Expense deductions allowed? | No |
| Advance tax due? | Yes – full by March 15 |
| Five-year lock-in rule? | Yes (else barred for 5 years if you exit early) |
Final Thoughts
For small business owners who want tax relief without paperwork overload, Section 44AD is a powerful tool. The increased ₹3 crore turnover limit encourages digital transactions and supports honest compliance. Just be sure to evaluate your eligibility, plan for the 5-year lock-in, and consult your tax advisor before opting in—especially if your business might grow or shift categories in the near future.