Key takeaways
- Presumptive taxation lets eligible small businesses and professionals declare profit at a fixed percentage of turnover, without detailed books or a tax audit.
- Businesses declare at least 8% of turnover (6% for digital receipts), with a turnover limit of ₹2 crore, or ₹3 crore if cash receipts are within 5%.
- Specified professionals declare at least 50% of gross receipts, with a limit of ₹50 lakh, or ₹75 lakh if cash receipts are within 5%.
- From tax year 2026-27, these schemes are in Section 58 of the Income-tax Act, 2025.
For small businesses and freelancers, keeping full books and getting an audit can cost more than the tax itself. Presumptive taxation solves this: you declare your profit as a fixed percentage of turnover and pay tax on that. This guide explains the schemes under Sections 44AD and 44ADA, and how they continue in Section 58 of the Income-tax Act, 2025, which applies from 1 April 2026.
What changed in 2026
The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026 and introduced a single "tax year" in place of the old previous year and assessment year. The three presumptive schemes, for businesses (44AD), professionals (44ADA) and goods carriage owners (44AE), are now combined in Section 58. The core structure, rates and limits continue. Commentators have flagged some drafting differences, for example around which activities disqualify a taxpayer, so get advice if you run more than one type of activity.
Scheme for small businesses (formerly 44AD)
| Point | Rule |
|---|---|
| Who can use it | Resident individuals, HUFs and partnership firms (not LLPs) |
| Turnover limit | ₹2 crore; ₹3 crore if cash receipts are not more than 5% of total receipts |
| Deemed profit | 8% of turnover; 6% for receipts by bank transfer, digital modes or account payee cheque received by the due date |
| Not available for | Professionals covered by the professionals' scheme, commission or brokerage income, and agency business |
Scheme for professionals (formerly 44ADA)
| Point | Rule |
|---|---|
| Who can use it | Resident individuals and partnership firms (not LLPs) in specified professions |
| Specified professions | Legal, medical, engineering, architecture, accountancy, technical consultancy, interior decoration and other notified professions |
| Receipts limit | ₹50 lakh; ₹75 lakh if cash receipts are not more than 5% of total receipts |
| Deemed profit | 50% of gross receipts |
Example: A trader has turnover of ₹1.2 crore, all received through bank transfers. Under the scheme, profit can be declared at 6%, that is ₹7.2 lakh, and tax is paid on that at slab rates. No detailed profit and loss account or tax audit is needed.
Benefits
- No need to maintain detailed books of accounts for the scheme
- No tax audit when you declare at or above the presumptive rate
- Advance tax in a single instalment, by 15 March
- Simpler return, usually ITR-4
Conditions that catch people out
- Five-year lock-in for businesses: if you opt for the business scheme and then declare lower profit in any of the next five years, you cannot use the scheme for the following five years, and books and audit may apply.
- Lower profit means books and audit: declaring less than the presumptive rate generally requires books of accounts and a tax audit when income exceeds the basic exemption limit.
- Cash receipts test: the higher limits apply only if cash receipts stay within 5%; track this through the year.
- No separate expense deductions: the deemed profit is treated as covering all business expenses, including depreciation.
- GST is separate: presumptive income tax has nothing to do with GST registration or the GST composition scheme.
Is it right for you?
If your actual margin is higher than the presumptive rate and you want simplicity, presumptive taxation is usually a good fit. If your margin is genuinely lower, you may save tax by keeping books and declaring actual profit, accepting the audit cost. Compare return forms in our ITR-3 vs ITR-4 guide, and plan your advance tax.
Our income tax return team checks your eligibility, calculates the best option and files your return before the due date.
This article explains the general position under the Income-tax Act, 2025 and the earlier Act as on the date shown. Section 58 is new and its interpretation is still developing; take advice for your facts.
Frequently asked questions
Can an LLP use presumptive taxation?
No. The business and professional schemes are available to resident individuals, HUFs and partnership firms, but not to LLPs or companies.
Can I declare profit lower than 8%?
Yes, but then you generally need to maintain books of accounts and get a tax audit if your income exceeds the basic exemption limit.
Do I need to pay advance tax under presumptive taxation?
Yes, but in one instalment: the full advance tax is due by 15 March of the financial year.
Which return form is used?
Presumptive income is usually reported in ITR-4 (Sugam), subject to eligibility; others use ITR-3.