Presumptive Taxation Scheme

Presumptive taxation lets small businesses and professionals skip detailed books, but there is a lock in trap that catches people who opt out without knowing the rules.

Direct Tax

Which ITR Form Applies to You?

New Tax Regime vs Old Tax Regime

TDS, Basics for Individuals

Capital Gains, Rates and Computation

Income from House Property

Advance Tax, Who Pays and When

Deductions under Chapter VI-A

Presumptive Taxation Scheme

Updated Return (ITR-U)

Scrutiny Notices, How to Respond

Section	Who it’s for	Presumptive income	Limit
44AD (small business scheme)	Small businesses	8% of turnover (6% digital)	2 crore (3 crore if 95%+ digital)
44ADA (professional scheme)	Doctors, lawyers, consultants, not LLPs	50% of gross receipts	50 lakh (75 lakh if 95%+ digital)
44AE (transport scheme)	Goods transport, up to 10 vehicles	Fixed amount per vehicle per month, higher for heavier vehicles	N/A

The 95% digital test is stricter than it first looks. It is measured by keeping aggregate cash receipts at 5% or less of total receipts for the entire year, receipts only, not payments you make out. Crucially, it is checked across the whole financial year, so one large cash deposit late in the year can retroactively push you over the 5% line and drop you back to the standard, lower threshold, even if every earlier month was comfortably digital. Worth tracking this running percentage through the year rather than assuming it at the end.

The lock in trap that catches people out: opt for 44AD, then opt out later, and you are barred from using it again for five full assessment years, and if your income then exceeds the exemption limit during that stretch, you are forced into mandatory tax audit too. Section 44ADA has no such lock in, professionals can switch in and out every single year freely.

If you skip presumptive taxation entirely, audit thresholds kick in. Without opting for 44AD, a business needs a tax audit above 1 crore rupees turnover, extended to 10 crore if cash transactions stay under 5%. A professional not using 44ADA needs one above 50 lakh rupees receipts. These are the thresholds that make presumptive schemes attractive in the first place, they are specifically designed to let you skip this.

A common misconception: LLPs are not eligible for 44ADA, only resident individuals and partnership firms qualify. Some sources say otherwise, but that is incorrect per the department’s own guidance.

Partnership firms under 44AD face a specific restriction worth knowing. The presumptive income figure is already the final number for the firm, partner remuneration and interest payments, which would normally be deductible in a regular computation, cannot be separately deducted from presumptive income.

Advance tax works differently here: the full amount is due in one shot by 15 March, not spread across quarterly instalments like normal.

FAQs: Presumptive Taxation Scheme

If I use 44ADA, do I still need books of accounts?

No, that is the core benefit. Basic income records are wise to keep anyway.

Can I switch out of 44AD whenever I like?

You can, but you are locked out of re-entering for five assessment years, and may face mandatory audit if your income crosses the exemption threshold during that time.

What if my turnover crosses the limit?

You move to normal computation with actual books, the scheme no longer applies.

My actual profit margin is only 3%, but 44AD assumes 8%. Am I stuck?

Not stuck, but you would need to opt out, maintain proper books, and likely undergo a tax audit to declare your real, lower profit instead.

Can I claim depreciation on business assets under 44AD?

No, depreciation is deemed already covered within the presumptive percentage, but you must still track the written down value of assets each year as if depreciation were claimed, since it affects capital gains if you sell the asset later.

Is 44ADA available to LLPs?

No, LLPs are excluded entirely, only resident individuals and partnership firms qualify.

What tax audit threshold applies if I do not use presumptive taxation at all?

1 crore rupees turnover for a business, extended to 10 crore if cash transactions stay under 5%, or 50 lakh rupees receipts for a professional not using 44ADA.

How is income computed under 44AE for a transport business?

A fixed deemed amount per vehicle per month, with heavier goods vehicles computed at a higher rate based on their weight, rather than a flat figure for every vehicle.

Can a doctor running a small clinic with a few staff still use 44ADA?

Generally yes, as long as receipts stay within the limit and the practice remains genuinely a specified profession rather than a larger business structure with substantial infrastructure that changes its character.

If I am a partner in a firm using 44AD, can my remuneration and interest reduce the firm’s presumptive income?

No, the presumptive figure is already final, partner remuneration and interest are not separately deductible from it, unlike a normal business computation.

Last updated on 30 July 2026