Section 44AD – Presumptive Income Scheme for Small Businesses

Running a small business in India? You may not need to maintain detailed books or get your accounts audited—if you opt for Section 44AD.

Introduced to promote ease of doing business, Section 44AD of the Income Tax Act offers a presumptive taxation scheme for small businesses, allowing them to pay tax on a fixed percentage of turnover.

Let’s simplify how this scheme works, who can opt for it, and how to file taxes correctly under Section 44AD.

✅ What Is Section 44AD?

Section 44AD is a presumptive taxation scheme applicable to resident individuals, HUFs, and partnership firms (excluding LLPs) engaged in eligible businesses.

Under this scheme:

• Businesses declare a fixed percentage of their gross receipts as income
• No need to maintain books of accounts as per Section 44AA
• No requirement for audit under Section 44AB "

It’s a great relief for small traders, retailers, shopkeepers, contractors, and service providers (excluding professionals under Section 44ADA).

📋 Eligibility Criteria for Section 44AD

You can opt for Section 44AD if:

💰 How Income Is Calculated Under Section 44AD

• If revenue is received in cash → 8% of the total turnover is deemed as income
• If revenue is received via bank or digital means → 6% of the total turnover is deemed as income

💡 This income is considered as final taxable income—you don’t need to claim any further deductions or expenses.

You will then pay tax on this deemed income as per your applicable slab rate.

🧾 Example: Income Calculation Under Section 44AD

Let’s say:

• Your business turnover in FY 2023–24 is ₹80 lakh
• ₹60 lakh is received via bank (UPI, card, NEFT)
• ₹20 lakh is received in cash

Presumptive income:

• 6% of ₹60 lakh = ₹3.6 lakh
• 8% of ₹20 lakh = ₹1.6 lakh
• Total income = ₹5.2 lakh

Now, if this is your only income, you may not need to pay any tax due to the rebate under Section 87A (if taxable income is below ₹7 lakh under the new regime).

📦 Benefits of Section 44AD

• ✅ No need to maintain books of accounts
• ✅ No audit required
• ✅ Flat presumptive income—saves time and cost
• ✅ Suitable for traders and small shopkeepers
• ✅ Reduces tax compliance burden for small businesses

🚫 Who cannot opt for Section 44AD?

• LLPs and companies
• Professionals like doctors, CAs, lawyers, designers (use Section 44ADA)
• Businesses earning commission or brokerage
• Businesses involved in agency work
• Those whose turnover exceeds ₹2 crore

⚠️ Important Compliance Points

• If you opt for Section 44AD, you must declare income at 6% or 8%
• You cannot claim business expenses like rent, depreciation, fuel, etc.
• If you opt out after using the scheme, you cannot opt back in for the next 5 years, and will have to maintain books and get the audit done if your income exceeds the basic exemption limit

🧠 People Also Ask

❓ Can I file ITR-1 under Section 44AD?

No. You must file ITR-4 (Sugam) if you opt for Section 44AD.

❓ Can I declare a higher income than 6% or 8%?

Yes, you can voluntarily declare a higher income, which may be helpful in case of loan applications or visa processing.

❓ Is GST turnover considered for 44AD?

No. Turnover under Section 44AD is exclusive of GST if GST is charged separately in invoices.

❓ Can I claim 80C, 80D, and other deductions?

Yes. Section 44AD restricts business expense deductions, but you can still claim Chapter VI-A deductions like 80C, 80D, etc.

📝 Common Mistakes to Avoid

• Filing ITR-1 instead of ITR-4
• Declaring lower income without opting out properly
• Claiming disallowed deductions (e.g., rent, fuel, depreciation)
• Ignoring the 5-year lock-in period after opting out
• Not keeping digital payment proofs for the 6% declaration

🎯 Final Thoughts from a CA’s Desk

“Section 44AD is tailor-made for India’s small businesses—it simplifies tax, saves time, and keeps you compliant.”

But like every scheme, it comes with conditions. Whether you’re a local trader, freelancer with product income, or run a retail shop, understanding how 44AD applies to your business can save you from audit trouble and unnecessary stress.

📞 Need Help Filing ITR Under Section 44AD?

At CallmyCA, we help:

• Check your eligibility for presumptive taxation
• Calculate correct 6%/8% income split
• File ITR-4 accurately and timely
• Guide on switching between presumptive and regular schemes

👉 Click here to book your Section 44AD tax filing with CallmyCA