Section 44AD: Presumptive Taxation for Business

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Sakshi Shah

Business and Profession Income
Presumptive Taxation Scheme
Section 44AD
Last updated on November 30th, 2023

To provide relief to small taxpayers from the tedious task of maintaining books of accounts and getting books of accounts audited, the CBDT introduced the Presumptive Taxation Scheme. Section 44AD of the Income Tax Act provides the provision of the presumptive taxation scheme for businesses. A business with a turnover of up to INR 3 Crore can take the benefit of presumptive taxation under Section 44AD.

Section 44AD: Eligibility

The following taxpayers engaged in any business can opt for the Presumptive Taxation Scheme under Section 44AD.

The following taxpayers cannot opt for the Presumptive Taxation Scheme under Section 44AD:

The Budget 2023 revised presumptive taxation limits under Sec 44AD for Business upto INR 3 crore Previously the limit was upto INR 2 crore only..
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The Budget 2023 revised presumptive taxation limits under Sec 44AD for Business upto INR 3 crore Previously the limit was upto INR 2 crore only..

Calculation of Presumptive Income under Section 44AD

To opt for Presumptive Taxation Scheme under Section 44AD, the following two conditions should be satisfied:

  1. The gross sales or turnover of the business should be less than or equal to INR 3 Crore.
  2. The taxpayer should report 6%/8% or more of the gross sales or turnover as income in the ITR.

Note: The prescribed rate of 8% is for non-digital transactions in the business and the rate of 6% is for digital transactions in the business.

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Example

Akshay runs a trading business. The gross sales for FY 2023-24 are INR 1.8 Crore. Sales include cash payments of INR 80 lacs and non-cash payments of INR 1 Crore. Total Purchases are INR 50 lacs. The total expenses are INR 20 lacs which includes a salary, rent, electricity, maintenance, travelling, etc. Can he opt for the Presumptive Taxation Scheme under Section 44AD?

Since the gross sales are less than INR 3 Crore, Akshay can opt for Presumptive Taxation Scheme under Section 44AD.

Income Tax on Presumptive Income under Section 44AD

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Tax Audit and Books of Accounts for Presumptive Income under Section 44AD

Check Tax Audit Applicability u/s 44AB
Check Income Tax Audit applicability u/s 44AB to file Tax Audit Report Form 3CB - 3CD with your Income Tax Return.
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Check Tax Audit Applicability u/s 44AB
Check Income Tax Audit applicability u/s 44AB to file Tax Audit Report Form 3CB - 3CD with your Income Tax Return.
Explore

Section 44AD of Income Tax: 5 Year Rule

As per this rule, if a taxpayer opts for the presumptive taxation scheme in a financial year, they should opt for it for the next 5 financial years continuously. However, if the taxpayer fails to do so, they would not be able to take the benefit of presumptive taxation scheme for the next 5 financial years. For eg: A professional opts for Sec 44AD for AY 2018-19 and AY 2019-20. However, for AY 2020-21, he does not opt for the presumptive taxation scheme. In this case, he will not be eligible to claim the benefit of the presumptive taxation scheme for the next five AYs, i.e. from AY 2021-22 to AY 2025-26.

FAQs

Do I need to pay advance tax if I opt for the Presumptive Taxation Scheme under Section 44AD?

Yes. If the total tax liability for a financial year exceeds INR 10,000, you must pay advance tax. If you have opted for presumptive taxation scheme u/s 44AD or 44ADA, you are required to pay advance tax on or before 15th March instead of 4 instalments in other cases. However, if you fail to pay advance tax by 15th March of the financial year, interest is Sec 234B and Sec 234C is required to be paid.

Do I need to maintain books of accounts if I opt for the Presumptive Taxation Scheme under Section 44AD?

A person engaged in a business having gross sales or turnover up to INR 2 Cr has the option to opt for the Presumptive Taxation Scheme under Sec 44AD. They can report 6%/8% or more of gross receipts as income and pay tax on it. If they opt for Presumptive Taxation, they are not required to maintain books of accounts as per Section 44AA. They are also not liable for Tax Audit as per Section 44AB.

Got Questions? Ask Away!

  1. I am a practicing doctor, majority of my receipts are in cash but my gross receipts are less than Rs. 50 lakhs. Can I opt this presumptive taxation scheme?

  2. Hi @Swapnil_Agarwal,

    The condition of cash receipts not exceeding 5% of the gross receipts is applicable only on the enhanced limits of ₹75 Lakhs, so you can opt for presumptive taxation scheme even if your cash receipts exceeds 5% of the gross receipts with total receipts not exceeding ₹50 lakhs.

    Hope this helps!!

  3. Hello Niyati, I am working as freelancer for a foreign client. My income would be 60L approximately. Since the income exceeds the limit of 50L but less than 75L can I still opt for sec 44ADA? I have no other source of income.

  4. Hi @Ishwar,

    Yes, you can opt for Sec 44ADA as your income is less than ₹75 Lakhs. The enhanced limits are applicable for the FY 2023-24. Also you will have to check that your cash receipts don’t exceed 5% of the gross income from Freelancing.

    Hope this helps!!

  5. Thanks for your reply. I don’t earn any money in form of cash.

  6. Hi @Ishwar,

    Since you won’t be earning any money in form of cash you can opt for Sec 44ADA

  7. Hi @CA_Niyati_Mistry. Thank you so much for your time.

    I successfully filed my taxes under 44ADA for AY 22-23. I want to file my tax for AY23-24 now. I have two major questions.

    1. For AY23-25, do I have to pay advance tax (100% of my total tax) by 15th March 2023 or 2024? Which year?
    2. If I have to pay it by 15th March 2023, I should go to the income tax website and pay advance tax for AY23-24. But I distinctly remember that for AY22-23, I could file my tax from the normal File Income Tax section where I could select section ADA and fill my information and the website would calculate my tax for me. But when opting for advance tax this year I do not see any such options.

    Cleartax has this to say.

    Further, anyone opting for this scheme is not bound by the mandate of maintaining books of accounts too. While he is also liable to file his return by 31 July of the assessment year, he must file his return in ITR 4.

    They say I have to file it by 31st July 2024. What am I missing? Again thank you for your time!

  8. @CA_Niyati_Mistry I have a thread about this topic here now.

    On further research I realised I misunderstood quite a few things.

    Please correct me if I’m wrong!

    Income tax filing and Advance payment are completely different things. You pay advance tax before 15th March of the financial year and then file your income tax returns in the Assessment year.

    Okay it makes sense now. I will make the following assumptions for my timeline. Please let me know if I am correct.

    1. For my FY22-23 income, I should go to the income tax website and pay my estimated advanced tax for the income I earned between 1st April 2022 and 31st March 2023 under AY23-24. Because I’m eligible for 44ADA, I have the benefit of paying it all in one go before March 15th 2023 instead of paying it in instalments.

    2. Then before 31st July 2023, I will have to file my income tax return. Neutral case - I won’t have to pay anything when filing my ITR because my estimated advanced tax payment was correct. Worst case - I have to file any difference and pay some more. Best case, my advance tax payment was more and I get a refund.

    Are the dates mentioned correct? Are my assumptions right? Thanks again for your time.

  9. Hi @Vivek_Negi,

    Yes, the dates mentioned and the assumptions are correct. Income Tax Return filing and Advance Tax payment are two different concepts. While you file ITR after the PY 2022-23 ends till 31st July, Advance tax is the tax liability that you pay before the year ends. In case of 44ADA only one installment of Advance tax is applicable i.e 15th March where you pay the entire estimated tax liability in one go.

    At the time of return filing the income will be calculated again and thus tax liability might differ from what you had determined earlier at the time of Advance tax payment. In case you have paid excess Advance Tax you will receive refund and in case of deficiency you will have to pay tax along with interest.

    Hope this clarifies!

  10. so . whether i opt for presumptive or non-presumptive ; advance tax has to be paid as pet the % slabs and as per the dates ! am i right ?

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