Presumptive Taxation up to ₹3 Crore and ₹75 Lakh: Should Your Business Opt In?
Under Section 58 of the Income-tax Act, 2025 (earlier 44AD and 44ADA), small businesses with turnover up to ₹2 crore, or ₹3 crore with cash receipts of 5% or less, can declare 8% of turnover as profit (6% for digital receipts). Professionals up to ₹75 lakh can declare 50%. Opting out within five years has consequences.
For a small trader or freelancer, the presumptive scheme can replace a full set of books and a tax audit with one simple calculation. It is not always the cheapest option, though.
The schemes
| Business (earlier 44AD) | Professionals (earlier 44ADA) | |
|---|---|---|
| Who | Resident individuals, HUFs and partnership firms (not LLPs) | Resident individuals and firms in specified professions: doctors, lawyers, engineers, architects, accountants, technical consultants and others |
| Turnover limit | ₹2 crore; ₹3 crore if cash receipts are 5% or less | ₹50 lakh; ₹75 lakh if cash receipts are 5% or less |
| Deemed profit | 8% of turnover; 6% for receipts by bank or digital modes | 50% of gross receipts |
| Advance tax | One instalment by 15 March | One instalment by 15 March |
Under the Income-tax Act, 2025, from Tax Year 2026-27, these schemes are in Section 58.
The five-year lock-in (business scheme)
If a business opts for the scheme and then, within the next five years, declares profit lower than the presumptive rate, it cannot use the scheme for the following five years, and may need a tax audit. Choose with the next few years in mind.
Who should opt in
Good fit:
- ✓Actual profit margin above 8% (or 6% for digital receipts).
- ✓Mostly digital receipts.
- ✓Little appetite for detailed bookkeeping and audit.
Poor fit:
- ✓Thin-margin trading, where 6% of turnover is more than real profit.
- ✓Years with losses.
- ✓Businesses that want to claim large expenses or depreciation.
A worked example
A Bhavnagar hardware trader has ₹2.6 crore turnover, all received by bank transfer and UPI, and real profit of ₹22 lakh (8.5%).
- ✓Presumptive: 6% of ₹2.6 crore = ₹15.6 lakh taxable.
- ✓Normal books: ₹22 lakh taxable, with full books of account. (No tax audit, because cash is minimal and turnover is below ₹10 crore.)
The scheme lowers taxable income by ₹6.4 lakh and needs far less bookkeeping. If real profit were 4%, the scheme would be worse.
Frequently asked questions
Do I still need to keep any records?
Keep records of turnover, bank accounts and GST returns. GST requires its own records regardless.
Can I claim salary to partners under the scheme?
For firms, the presumptive profit is final and expenses are deemed to be allowed. Check how remuneration is treated for your case.
Does the scheme cover commission agents?
No. Agency and commission income is excluded from the business scheme.
Sources
- ✓Presumptive taxation under Sections 44AD and 44ADA, Treelife
- ✓Section 44AD presumptive scheme, ClearTax
- ✓Section 44AD: presumptive taxation for business, Quicko
This is a summary, not tax advice. Confirm with your chartered accountant.
Written by
Founder, Airwix Technologies (Sleet)
Vatsal Sutariya is the founder of Airwix Technologies in Ahmedabad, the company that builds Sleet: SleetHR for HR and payroll, and Sleet Accounting for GST billing and books. He writes about GST, invoicing, business tax and choosing software for Indian businesses, and checks each rule against the official notification before it is published.
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