Presumptive taxation scheme: What are the 3 sections and who can opt for them — key income rules explained

The 31 August deadline for filing ITR-4 for AY 2026-27 is approaching. Taxpayers with income from eligible businesses, professions, or goods-carriage operations can opt for the presumptive taxation scheme under Sections 44AD, 44ADA, and 44AE.

The scheme simplifies tax compliance by allowing eligible taxpayers to declare income at a prescribed rate, reducing the need to maintain detailed books of account and undergo tax audits.

Here is a look at who can opt for each section, the applicable limits, and the key conditions taxpayers should know.

What is the presumptive taxation scheme?

Under the normal system, taxpayers generally calculate taxable business or professional income after accounting for eligible expenses. Under presumptive taxation, eligible taxpayers can declare income using a specified formula or rate.

The three sections cover different categories of taxpayers:

• Section 44AD: Eligible small businesses
• Section 44ADA: Specified professionals
• Section 44AE: Businesses involving goods carriages

Section 44AD: For small businesses

Section 44AD is available to a resident individual, resident HUF or resident partnership firm other than an LLP carrying on an eligible business.

The turnover limit is:

• ₹2 crore in a financial year.
• ₹3 crore, where cash receipts do not exceed 5% of total turnover or gross receipts.

Income is generally presumed at 8% of turnover or gross receipts. For receipts received through specified digital or banking modes, the presumptive rate is 6%. An eligible taxpayer can also voluntarily declare a higher income.

Gross receipts mean the total amount earned from business or professional activities before deducting any expenses.

However, Section 44AD cannot be used by:

• Non-residents, LLPs or companies.
• Persons carrying on an agency business.
• Persons earning income through commission or brokerage, such as insurance agents.
• Persons engaged in specified professions covered by Section 44AA(1).
• Businesses crossing the applicable turnover limit.

Once the presumptive income is declared, separate deductions for business expenses or depreciation cannot be claimed.

Section 44ADA: For specified professionals

Section 44ADA applies to a resident individual or resident partnership firm other than an LLP engaged in specified professions.

These include:

• Legal and medical professions
• Engineering or architecture
• Accountancy
• Technical consultancy
• Interior decoration
• Other professions notified by CBDT

The gross-receipts limit is ₹50 lakh in a financial year, which increases to ₹75 lakh where cash receipts do not exceed 5% of total gross receipts.

Under the scheme, 50% of gross receipts is presumed to be taxable professional income. The taxpayer can declare a higher amount but cannot claim additional expenses after opting for the scheme.

An eligible professional opting for Section 44ADA does not have to maintain books of account under Section 44AA for that profession or undergo a tax audit merely because of the presumptive scheme.

However, if income is declared below 50% and total income exceeds the basic exemption limit, books and tax audit requirements can apply.

Section 44AE: For goods carriage businesses

Section 44AE is meant for any taxpayer, including an individual, HUF, firm or company, engaged in plying, hiring or leasing goods carriages. The taxpayer must not own more than 10 goods vehicles at any time during the year.

Income is presumed at:

• ₹7,500 per month or part of a month for each goods vehicle other than a heavy goods vehicle.
• ₹1,000 per tonne of gross vehicle weight per month or part of a month for a heavy goods vehicle.
• A heavy goods vehicle is one with a gross vehicle weight exceeding 12,000 kg.

The presumptive income is treated as the final business income, so regular business expenses cannot be separately deducted. However, a partnership firm can claim eligible deductions for partner remuneration and interest subject to the applicable provisions.

How is advance tax considered?

Taxpayers opting for Sections 44AD and 44ADA must pay their entire advance tax liability by 15 March. For Section 44AE, there is no special concession from the normal advance-tax provisions.

Overall, the presumptive scheme is designed to make tax compliance easier for small businesses, specified professionals, and small goods-carriage operators, provided they meet the prescribed eligibility and turnover or vehicle limits.

Disclaimer: This is only for informational and educational purposes. Please consult a qualified expert for the latest laws and regulations.