Applicable tax year matters. This page explains Section 44AD of the Income-tax Act, 1961, including changes relevant to its later assessment years. The Income-tax Act, 2025 applies from 1 April 2026; check the corresponding provisions and transition rules for tax years governed by that Act. The old section number should not be assumed to be the current section number.
What is Section 44AD?
Section 44AD is a simplified method for computing taxable profits of qualifying small businesses. Instead of calculating business profit through the ordinary deduction framework, an eligible taxpayer may declare presumptive profits based on turnover or gross receipts, subject to the statutory conditions. It is not a flat tax rate: ordinary income-tax rates apply to the taxable income computed.
Who is an eligible assessee?
The Explanation to Section 44AD defines an eligible assessee as a resident individual, resident Hindu undivided family (HUF), or resident partnership firm other than a limited liability partnership (LLP), provided the specified profit-linked deductions are not claimed for the relevant assessment year.
Which businesses are excluded?
Under Section 44AD(6), the scheme does not apply to professions specified in Section 44AA(1), commission or brokerage income, or agency business. The Explanation also excludes the goods-carriage business covered by Section 44AE. The scheme is not available to companies, LLPs or non-resident assessees.
Presumptive profit rates and turnover limits
| Condition | Treatment under Section 44AD |
|---|---|
| General presumptive rate | 8% of qualifying turnover or gross receipts |
| Qualifying non-cash receipts | 6% on amounts received through qualifying banking or prescribed electronic modes within the permitted time |
| Ordinary turnover ceiling | Rs. 2 crore |
| Enhanced turnover ceiling (applicable from AY 2024-25 under the 1961 Act) | Rs. 3 crore if cash receipts do not exceed 5% of total turnover or gross receipts |
| Non-account-payee cheque or bank draft | Deemed cash for the 5% receipts test |
For the 6% rate, the receipt must satisfy the mode and timing requirements of Section 44AD(1), including receipt during the previous year or by the due date under Section 139(1), as applicable. The 5% cash-receipts test for the enhanced turnover ceiling is a separate eligibility test.
Section 44AD explained, subsection by subsection
Section 44AD(1): Presumed profits
Eligible business profits are deemed to be 8% of turnover or gross receipts, or 6% for qualifying receipts, or a higher amount claimed to have been earned by the assessee. The provision overrides the normal computation rules in Sections 28 to 43C to the extent specified.
Section 44AD(2): Expenses already allowed
Deductions under Sections 30 to 38 are treated as already reflected in the presumptive amount; a second deduction for these expenses is not allowed. This includes ordinary business expenses and depreciation.
Section 44AD(3): Written-down value
The written-down value of business assets is computed as if depreciation had been claimed and allowed in the relevant years, even though a separate depreciation deduction is not taken against presumptive income.
Section 44AD(4): Five-year opt-out restriction
Where an eligible assessee uses Section 44AD and, within the next five assessment years, declares profits outside Section 44AD(1), the assessee becomes ineligible for the scheme for the five assessment years following the year of departure, subject to the precise statutory wording.
Section 44AD(5): Books and audit after opt-out
When subsection (4) applies and total income exceeds the maximum amount not chargeable to tax, the taxpayer must maintain books as required by Section 44AA(2) and obtain and furnish a tax audit report under Section 44AB.
Section 44AD(6) and Explanation: Exclusions and definitions
These provisions identify excluded professions and activities, eligible assessees and eligible businesses, including the relevant turnover ceiling.
Worked example: 6% and 8% presumptive income
Assume an eligible resident sole proprietor has turnover of Rs. 1,50,00,000. Of this, Rs. 1,20,00,000 qualifies for the 6% rate and Rs. 30,00,000 is subject to the 8% rate.
| Turnover category | Calculation | Presumptive profit |
|---|---|---|
| Qualifying receipts | Rs. 1,20,00,000 x 6% | Rs. 7,20,000 |
| Other receipts | Rs. 30,00,000 x 8% | Rs. 2,40,000 |
| Total deemed business profit | Rs. 9,60,000 | |
Illustration only. It assumes the business and assessee are eligible and that the receipts satisfy the applicable legal tests.
Books of account, tax audit and compliance
The scheme reduces the need for detailed profit computation, but it does not eliminate every obligation to preserve transaction evidence or comply with GST, banking, TDS or other laws. Maintain turnover records and proof of receipt modes to support the 6% rate and the conditional Rs. 3 crore ceiling.
Important distinction: Declaring profit below the presumptive percentage does not automatically establish a tax-audit obligation in every case. Examine the facts, Section 44AD(4) and (5), and the relevant clauses of Section 44AB. The audit rules also depend on the applicable tax year.
Professionals may need to consider Section 44ADA; goods-carriage operators should examine Section 44AE. Record-keeping rules are explained in Section 44AA.
Frequently asked questions
Who can use Section 44AD?
Resident individuals, Hindu undivided families and partnership firms other than LLPs may use the scheme if the other statutory conditions are met. Companies and non-residents are not eligible.
What is the presumptive profit rate?
Generally 8% of eligible turnover or gross receipts, reduced to 6% for qualifying banking or prescribed electronic receipts within the statutory time window. A higher amount actually claimed as earned is also relevant.
Is the turnover limit Rs. 2 crore or Rs. 3 crore?
For the later years of the 1961 Act, the general ceiling is Rs. 2 crore, increased to Rs. 3 crore if cash receipts do not exceed 5% of total turnover or gross receipts. Non-account-payee cheques or drafts are treated as cash for this test.
Is tax audit always required when profit is below 8%?
No. A lower profit declaration does not by itself always require audit. The five-year opt-out provisions of Section 44AD(4) and the income condition in Section 44AD(5), together with Section 44AB, must be checked.
Can commission agents use Section 44AD?
No. Agency businesses and persons earning commission or brokerage are excluded; specified professions under Section 44AA(1) are also excluded.
Official legislation and guidance
Check the law and its effective date directly from official government resources:
- Income Tax Department of India - tax laws, notifications and taxpayer resources.
- India Code - central legislation and statutory text.
- Income Tax e-Filing Portal - return filing and taxpayer services.
- e-Gazette of India - official Acts and notifications.
For post-1 April 2026 tax years, consult the Income-tax Act, 2025 and applicable rules rather than applying historical Section 44AD numbering automatically.
Original Section 44AD text and amendment notes (historical source)
The following source material is preserved for reference. It predates later amendments, including the conditional Rs. 3 crore ceiling, and should not be treated as a fully updated consolidation.
View original statutory text and historical amendment notes
1(1) Notwithstanding anything to the contrary contained in sections 28 to 43C,in the case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession".
2 Provided that this sub-section shall have effect as if for the words "eight per cent.", the words "six per cent." had been substituted, in respect of the amount of total turnover or gross receipts which is received by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account during the previous year or before the due date specified in sub-section (1) of section 139 in respect of that previous year.
(2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed:
3 * * * * *
(3) The written down value of any asset of an eligible business shall be deemed to have been calculated as if the eligible assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years.
4(4) Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1), he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of sub-section (1).
(5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee to whom the provisions of sub-section (4) are applicable and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.
5 (6) The provisions of this section, notwithstanding anything contained in the foregoing provisions, shall not apply to-
(i) a person carrying on profession as referred to in sub-section (1) of section 44AA;
(ii) a person earning income in the nature of commission or brokerage; or
(iii) a person carrying on any agency business.
Explanation.-For the purposes of this section,-
(a) "eligible assessee" means,-
(i) an individual, Hindu undivided family or a partnership firm, who is a resident, but not a limited liability partnership firm as defined under clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009); and
(ii) who has not claimed deduction under any of the sections 10A, 10AA, 10B, 10BAor deduction under any provisions of Chapter VIA under the heading "C. - Deductions in respect of certain incomes" in the relevant assessment year;
(b) "eligible business" means,-
(i) any business except the business of plying, hiring or leasing goods carriages referred to in section 44AE; and
(ii) whose total turnover or gross receipts in the previous year does not
exceed an amount of 6 two crore rupees.
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1. Subs. by Act 33 of 2009, s. 20, for section 44AD (w.e.f. 1-4-2011).
2. Ins. by Act 7 of 2017, s. 21 (w.e.f. 1-4-2017).
3. The proviso omitted by Act 28 of 2016, s. 26 (w.e.f. 1-4-2017).
4. Subs. by s. 26, ibid., for sub-sections (4) and (5) (w.e.f. 1-4-2017).
5. Ins. by Act 23 of 2012, s. 14 (w.e.f. 1-4-2011).
6. Subs. by Act 28 of 2016, s. 26, for "one crore rupees" (w.e.f. 1-4-2017).