Section 44AD Guide FY 2025–26 | Presumptive Taxation

Section 44AD Explained: Presumptive Taxation Guide for FY 2025–26 (AY 2026–27)

For small business owners, tax compliance can often feel like a distraction from running the business. Section 44AD simplifies this by allowing you to declare income at a fixed rate without maintaining detailed books.

1️⃣ Who Is Eligible?

  • Individuals
  • Hindu Undivided Families (HUFs)
  • Partnership Firms (excluding LLPs)

Not Eligible:

  • LLPs
  • Professionals (covered under Section 44ADA)
  • Commission or brokerage businesses
  • Agency businesses
  • Transport businesses (covered under Section 44AE)

2️⃣ Turnover Limits for FY 2025–26

Category Limit Condition
Normal Limit ₹2 Crore If cash receipts exceed 5%
Enhanced Limit ₹3 Crore If cash receipts ≤ 5%

3️⃣ Presumptive Tax Rates

Mode Rate Explanation
Digital 6% Encourages online payments
Cash 8% Standard presumptive rate

You can declare higher income voluntarily if actual profit is more.

4️⃣ Allowances & Disallowances

No Expense Deductions: Rent, salary, electricity, and depreciation cannot be claimed separately.

No Partner Salary or Interest Deduction: The declared profit is treated as final income.

5️⃣ 5-Year Lock-in Rule

If you opt for Section 44AD, you must continue for 5 years.

  • If you exit early, you cannot re-enter for 5 years
  • You must maintain books
  • Audit may be required

6️⃣ Deadlines & Audit

  • Advance Tax: Pay 100% by 15th March
  • Audit Required: If profit declared is lower than 6%/8% and income exceeds exemption limit

📝 Real-World Example

Business: Sharma Textiles

Turnover: ₹2.50 Crore

  • Digital: ₹2.40 Cr × 6% = ₹14.40 Lakhs
  • Cash: ₹10 Lakhs × 8% = ₹0.80 Lakhs

Total Income: ₹15.20 Lakhs

Partner Salary & Interest: Not Allowed

Final Taxable Income: ₹15.20 Lakhs

❓ FAQs

Q1: Can partner salary be deducted?

Ans: No, it is not allowed under Section 44AD.

Q2: Applicable under new tax regime?

Ans: Yes, applicable under both regimes.

Q3: Do I need to maintain records?

Ans: Basic proof like bills and bank statements should be kept.

Q4: Turnover ₹2.8 Cr with 10% cash?

Ans: Not eligible as it exceeds ₹2 Cr limit.

Q5: Can I switch every year?

Ans: No, 5-year lock-in applies.