Presumptive Taxation (44AD / 44ADA / 44AE)

What is Presumptive Taxation?

Presumptive taxation is a simplified income-computation scheme under the Income Tax Act for small businesses and specified professionals. Instead of maintaining detailed books and undergoing tax audits, you declare a fixed minimum percentage of turnover as profit and pay tax on that — no questions asked.

The Three Key Sections

• Section 44AD — small businesses (resident individual, HUF, firm except LLP) with turnover up to Rs 3 crore (raised from Rs 2 cr in Budget 2023, if 95% receipts are digital). Declare 8% of turnover as profit (6% for digital receipts).
• Section 44ADA — specified professionals (doctors, lawyers, CAs, architects, engineers, IT consultants, designers, accountants, technical consultants, interior designers) with gross receipts up to Rs 75 lakh (raised from Rs 50L; if 95% digital). Declare 50% of gross receipts as profit.
• Section 44AE — small transport operators owning up to 10 goods carriages. Declare Rs 1,000 per ton per month for heavy goods vehicles (gross vehicle weight > 12,000 kg); Rs 7,500/month per vehicle otherwise.

Worked Example (44ADA)

Freelance IT consultant invoices Rs 40 lakh in FY26 (all via UPI/bank transfer). Under 44ADA, declared income = Rs 20 lakh (50%). Tax under new regime: ~Rs 2.0 lakh + cess. No books required, no tax audit, no GST audit (under threshold).

When to Apply

• You're a freelance professional/small business owner with simple operations
• Actual profit margin is naturally above the presumptive % (you save tax)
• You want to skip the burden of detailed bookkeeping and Form 3CD audit

Lock-in Caveat (44AD)

If you opt out of 44AD after opting in, you cannot re-enter for 5 years. Also, if you declare profit below 8%/6%, books + audit become mandatory and the 5-year lock kicks in.

Educational only — not advice. Consult a CA for your specific case. ARN-314872.