What Section 44AD allows

Under Section 44AD of the Income Tax Act, 1961, eligible resident individuals, HUFs, and partnership firms (excluding LLPs) can declare income at a presumptive rate without maintaining books of account. The scheme covers any business except those already covered by Sections 44AE (goods carriages), 44B (shipping), 44BB (oil rigs), 44BBA (aircraft), and 44BBB (power). Professionals cannot use Section 44AD — they must use Section 44ADA instead.

Turnover limits for FY 2024-25 (AY 2025-26)

The presumptive scheme applies if total turnover does not exceed ₹3 crore. Where cash receipts exceed 5% of total turnover, the threshold drops to ₹75 lakh. Both limits apply per previous year. Turnover for Section 44AD means aggregate revenue from all businesses of the assessee, not per business.

Deemed income rates

Income is deemed at 8% of turnover for non-digital receipts and 6% for digital/banking-channel receipts (effective from AY 2024-25). The assessee declares the higher of the two rates. Books need not be maintained if declared income is at least the presumptive rate; the assessee is also exempt from the audit requirement under Section 44AB if declared income equals or exceeds the presumptive rate.

Advance tax under Section 44AD

Advance tax under Section 44AD is paid in a single instalment by 15 March of the financial year, not in the four quarterly instalments applicable to other assesses. Failure to pay by 15 March attracts interest under Section 234B (1% per month) and Section 234C (variable rates).

Who cannot use Section 44AD

Limited liability partnerships (LLPs), companies, foreign entities, and assesses with business income covered by Sections 44AE / 44B / 44BB / 44BBA / 44BBB are ineligible. Professionals regulated by any professional body (doctor, lawyer, CA, architect, etc.) cannot use Section 44AD; they must use Section 44ADA.

Declaring income lower than presumptive rate

An assessee may declare income lower than 8%/6% but must then maintain books of account under Section 44AA and get the accounts audited under Section 44AB if turnover exceeds ₹1 crore (₹10 crore if 95%+ of transactions are digital). The lower declared income is accepted only if it is reasonable and supported by evidence; the AO can reject it and substitute presumptive income.

Section 44AD vs Section 44ADA

Section 44AD applies to businesses; Section 44ADA applies to specified professionals. The turnover limits, advance-tax rules, and audit exemptions differ between the two. Businesses carrying on both eligible business and profession must use Section 44AD for the business and Section 44ADA for the profession separately.

Common mistakes

(1) Claiming Section 44AD on cash turnover that exceeds 5% of total receipts. (2) Declaring income lower than 8% without maintaining books and audit. (3) Missing the 15 March advance-tax deadline. (4) Filing ITR-1 instead of ITR-4 (Section 44AD requires ITR-4). (5) Using Section 44AD for a profession — only Section 44ADA applies.

Example

A retail shop with total turnover of ₹90 lakh and digital receipts of ₹30 lakh declares presumptive income of ₹4.8 lakh (6% on ₹30 lakh) + ₹4.8 lakh (8% on ₹60 lakh) = ₹9.6 lakh. Books are not required. Advance tax of ₹9.6 lakh is paid by 15 March. ITR-4 is filed by 31 July (or 31 October with audit).

Recent amendments

Finance Act 2023: digital-receipt threshold of 95% introduced for higher limits. Finance Act 2024: 6% deemed rate for digital receipts effective AY 2024-25. CBDT Circular 17/2019 clarifies that assessees with multiple businesses can choose presumptive taxation for each business independently.

Section 44AD