Presumptive Taxation (44AD / 44ADA)
Presumptive taxation lets small businesses (44AD) and professionals (44ADA) declare fixed profit rates — no books of account or tax audit needed.
Definition
Presumptive taxation lets small taxpayers declare income at a fixed percentage of turnover instead of maintaining detailed books of account or getting a tax audit. Section 44AD covers eligible resident businesses (individuals, HUFs, partnership firms other than LLPs): profit is presumed at 8% of turnover, or 6% for receipts received digitally or through banking channels. Section 44ADA covers specified resident professionals (legal, medical, engineering, architecture, accountancy, technical consultancy, etc.): profit is presumed at 50% of gross receipts.
The limits for AY 2026-27: Section 44AD applies up to ₹2 crore turnover, enhanced to ₹3 crore if cash receipts are no more than 5% of total turnover (i.e., 95%+ digital/banking receipts). Section 44ADA applies up to ₹50 lakh gross receipts, enhanced to ₹75 lakh under the same 95%-digital condition. You can always declare a higher profit than the presumptive rate; declaring lower requires maintaining books and getting audited if your income exceeds the basic exemption limit.
File using ITR-4 (Sugam) on the e-filing portal. Presumptive taxpayers get an advance-tax concession too: instead of four instalments, the entire advance tax can be paid in one instalment by 15 March. No deduction for business expenses or depreciation is allowed on top — the presumed profit is deemed to be net of all expenses.
The main trap is the 5-year rule under Section 44AD(4): if you opt in and then declare non-presumptive (lower) profits in any of the next 5 years, you are barred from Section 44AD for the following 5 assessment years and must keep books (and get audited if income exceeds the exemption limit). This lock-in applies to 44AD businesses, not to 44ADA professionals, who can switch year to year.
Example
A freelance software consultant with ₹60 lakh of fully digital receipts opted for Section 44ADA in AY 2026-27, declared ₹30 lakh (50%) as income in ITR-4, and skipped books and audit entirely.
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Sources
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