What is Presumptive Taxation Under Section 44AD?
Presumptive taxation is a simple tax scheme for small businesses. Instead of maintaining detailed books and accounts, eligible businesses can declare income at a fixed percentage of their turnover and pay tax on that. It’s designed to reduce compliance and paperwork.
Who Can Use This Scheme?
The following can opt for this scheme:
· Resident Individuals
· Hindu Undivided Families (HUFs)
· Partnership Firms (but not LLPs)
Who Cannot Use This Scheme?
You cannot use Section 44AD if:
· You’re an LLP, company, trust, or co-operative society
· You’ve claimed tax deductions under sections like 10A, 10AA, 10B, 10BA, or 80H to 80RRB
What Kind of Business is Allowed Under This Scheme?
Any business (except a few listed below) is allowed if:
- Your annual turnover is up to ₹2 crore, or
- Up to ₹3 crore, if cash receipts are ≤ 5% of total turnover
Note: Turnover received by non-account payee cheques is considered as cash, so it must be avoided if you're claiming the ₹3 crore limit.
Which Businesses Are Not Allowed Under Section 44AD?
You can't use this scheme if you:
· Run a transport business (use Section 44AE instead)
· Work as a professional (doctor, CA, architect – use Section 44ADA instead)
· Earn from commission or brokerage
· Do agency business
· Are involved in speculative trading
How Much Income is Taxed Under Section 44AD?
You are taxed on:
- 8% of turnover if received in cash
- 6% if received by account payee cheque, bank transfer, or UPI
Example:
If your turnover is ₹50 lakhs and ₹40 lakhs was received via bank transfer and ₹10 lakhs in cash:
- ₹40L × 6% = ₹2.4L
- ₹10L × 8% = ₹0.8L
Taxable Income = ₹3.2 lakhs
Can I Show Profit Less Than 6%/8%?
Yes, but with conditions. If you declare profit below 6%/8%, then:
· You can’t use the presumptive scheme for next 5 years
· You must maintain books and get them audited if income exceeds the basic exemption limit
Do I Need to Maintain Accounts or Do Audit?
No. If you opt for this scheme, you're not required to:
· Maintain detailed books
· Get your accounts audited under Section 44AB
But if you declare less profit and your income is above the taxable limit, books and audit become mandatory
Can I Claim Business Expenses Separately?
No. Under this scheme:
· All deductions (like rent, fuel, depreciation) are considered already allowed
· Partnership firms also cannot claim extra deductions like partner salary or interest
Do I Still Need to Pay Advance Tax?
Yes. But there’s good news — you can pay 100% of your advance tax by March 15 in one instalment, instead of paying in four parts like regular taxpayers.
Can I Still Claim Tax Deductions Like 80C or 80D?
Yes, you can claim deductions under:
- Chapter
VI-A Part A, B, CA, and D
(e.g., 80C for LIC, 80D for medical insurance)
But you cannot claim any deduction under:
- Chapter VI-A Part C (like 80H to 80RRB)
Quick Recap: Should You Choose Section 44AD?
You can if:
- Your business turnover is within ₹2–3 crore
- You mostly receive payments digitally
- You want to avoid bookkeeping and audit
Avoid it if:
- You’re a professional, agent, or deal in commission
- You have deductions you don’t want to lose
- You may show lower profit and don’t want audit obligations later