Sections 44AD and 44ADA of the Income-tax Act, 1961 are both presumptive schemes, but they serve different taxpayers. Section 44AD is for eligible small businesses; section 44ADA is for specified professions. The choice is not about which gives the lower tax: the nature of the activity and the taxpayer's legal status decide which scheme can apply at all. From Tax Year 2026-27, both are carried into a single provision, section 58 of the Income-tax Act, 2025.
Which law applies to which year
For income of FY 2025-26, filed as AY 2026-27, sections 44AD and 44ADA of the 1961 Act apply. For income earned from 1 April 2026 (Tax Year 2026-27 onwards), section 58 of the Income-tax Act, 2025, headed "Special provision for computing profits and gains of business or profession on presumptive basis in case of certain residents", applies. Its Table puts the three schemes side by side: serial 1 is the old 44AD business scheme, serial 2 the goods carriage scheme (old 44AE) and serial 3 the old 44ADA profession scheme. The thresholds and rates are the same as the 1961 Act position.
| Point | Business (44AD; s. 58 Table Sl. 1) | Profession (44ADA; s. 58 Table Sl. 3) |
|---|---|---|
| Who | Resident individual, HUF or partnership firm other than an LLP | Resident individual or partnership firm other than an LLP |
| Activity | Any business except goods carriages, agency business, commission or brokerage and specified professions | Specified profession |
| Normal limit | Turnover up to ₹2 crore | Gross receipts up to ₹50 lakh |
| Higher limit | ₹3 crore if cash receipts do not exceed 5% of turnover | ₹75 lakh if cash receipts do not exceed 5% of gross receipts |
| Presumptive income | 6% of receipts through specified banking or online modes plus 8% of the rest, or higher actual profit | 50% of gross receipts, or higher actual profit |
| Expenses | No further deduction of business expenses; Chapter VI-A deductions remain available | |
Who can use the business scheme
The Department's FAQs on the presumptive taxation scheme under the 2025 Act (Q2) list a resident individual, a resident HUF and a resident partnership firm other than an LLP. The benefit is not available to non-residents, LLPs, companies, trusts or co-operative societies. Q3 excludes the business of plying, hiring or leasing goods carriages, any agency business, any business earning commission or brokerage, and a specified profession referred to in section 62(4). An insurance agent earning commission, for example, cannot use the business scheme.
The ITR-4 FAQs for AY 2026-27 state the 1961 Act limit the same way: "Rs.3 crore (if the sum of amount or aggregate of the amounts received during the previous year, in cash and in any other mode, does not exceed 5% of the total gross receipts of such previous year) and Rs.2 crores otherwise."
Who can use the profession scheme
Section 44ADA of the 1961 Act covers "an assessee, being an individual or a partnership firm other than a limited liability partnership ... who is a resident in India, and is engaged in a profession" referred to in section 44AA(1). Note that an HUF is not in this list. The professions include legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration and others notified by CBDT; the 2025 Act FAQs (Q13) add information technology, film artist and company secretary among the twelve listed. A consultant must first show that the work falls in one of these; calling receipts "professional fees" is not enough.
The 50% presumption applies where gross receipts do not exceed ₹50 lakh, and the limit becomes ₹75 lakh where cash receipts do not exceed 5% of total gross receipts. Section 44ADA(2) deems deductions under sections 30 to 38 to have been given full effect, and 44ADA(3) deems written down value of assets to have been computed as if depreciation had been claimed.
How presumptive income is worked out
For business, section 58's Table sets presumptive income at 6% of turnover received through specified banking or online modes plus 8% of the remaining turnover, or a higher amount the taxpayer declares. For a profession, it is 50% of gross receipts, or more if declared. Section 58(4) states that "any loss, allowance or deduction allowable under the provisions of this Act, shall not be allowed against the income computed" this way. The ITR-4 FAQs put the 1961 position the same way: no further claim of deduction after declaring profit at the specified rate, but Chapter VI-A deductions remain available.
Worked examples
1. Trader close to the ₹3 crore line
A resident proprietor has turnover of ₹2.60 crore, of which ₹2.50 crore is received by bank transfer or UPI and ₹10 lakh in cash. Cash is 3.85% of turnover, within 5%, so the ₹3 crore limit applies and the scheme is available. Presumptive income is 6% of ₹2.50 crore (₹15,00,000) plus 8% of ₹10 lakh (₹80,000) = ₹15,80,000.
If cash receipts had been ₹15 lakh, cash would be 5.77% of turnover. The limit would fall back to ₹2 crore, and at ₹2.60 crore the business would be outside the scheme altogether, needing books of account and, depending on turnover and other conditions, a tax audit.
2. Small shop
Turnover ₹1.40 crore: ₹1.10 crore through banking channels and ₹30 lakh in cash. Presumptive income is 6% of ₹1.10 crore (₹6,60,000) plus 8% of ₹30 lakh (₹2,40,000) = ₹9,00,000. Moving more collections to UPI or bank transfer lowers the presumptive figure, since the digital share is taxed at 6%.
3. Practising chartered accountant
Gross receipts ₹45 lakh; actual expenses ₹15 lakh, so actual profit is ₹30 lakh. Under the profession scheme, presumptive income is 50% of ₹45 lakh = ₹22,50,000, lower than the actual profit, and the scheme is attractive. If expenses were instead ₹30 lakh, actual profit would be ₹15 lakh, below the 50% figure. Declaring the lower amount takes the practitioner out of the scheme: under 44ADA(4), books of account and an audit are needed when lower profits are claimed.
4. Professional near ₹75 lakh
Gross receipts ₹68 lakh with ₹3 lakh in cash (4.41%): the ₹75 lakh limit applies and presumptive income is ₹34,00,000. With ₹4 lakh in cash (5.88%), the limit is ₹50 lakh and ₹68 lakh is over it; the scheme is not available.
5. The five-year bar for business
Section 58(7) says an eligible business taxpayer who declares presumptive profit and, within the next five years, declares a lower profit, loses the scheme for the following five tax years. The FAQs (Q12) add that during that period the person may need to maintain books under section 62 and get them audited under section 63. So a trader who opts in for Tax Year 2026-27 and declares a lower profit in Tax Year 2028-29 cannot return to the scheme for Tax Years 2029-30 to 2033-34.
Books, audit and advance tax
- Books of account: the 2025 Act FAQs state that where an eligible assessee opts for the scheme, "the provisions relating to maintenance of books of account under Section 62 shall not apply".
- Audit: no audit is needed while presumptive income is declared. Declaring less than the presumptive figure is what brings sections 62 and 63 (the old sections 44AA and 44AB) back into play.
- Advance tax: the ITR-4 FAQs state that anyone opting for 44ADA "is liable to pay 100% of Advance Tax on or before 15th March of the previous year". The 2025 Act FAQs say the whole advance tax may be paid in a single instalment on or before 15 March of the tax year.
- Return form: ITR-4 is available only where total income does not exceed ₹50 lakh and the other ITR-4 conditions are met. Presumptive eligibility alone does not settle the return form.
Decision checklist
- Classify the activity: eligible business, specified profession, or neither (agency, commission, goods carriages).
- Check status: resident individual, HUF (business only) or non-LLP firm.
- Measure turnover or gross receipts for the year.
- Test the 5% cash condition before relying on ₹3 crore or ₹75 lakh.
- Split receipts between banking or online modes and cash for the 6% and 8% rates.
- Compare with actual profit and consider the five-year bar before declaring less.
- Plan advance tax by 15 March and check ITR-4 eligibility separately.
Common mistakes
- Using the business scheme for a specified profession because it is run as a proprietorship.
- Assuming every consultant qualifies as a specified profession.
- Using the higher limit without testing the 5% cash condition.
- Claiming expenses again after declaring presumptive profit.
- Assuming an LLP, or an HUF for the profession scheme, can opt in.
- Treating presumptive eligibility as ITR-4 eligibility.
- Citing only the 1961 sections for income earned from 1 April 2026, which falls under section 58 of the 2025 Act.
Updated on 27 September 2026: added section 58 of the Income-tax Act, 2025 alongside sections 44AD and 44ADA, the five-year bar under section 58(7), books and audit rules, and five worked calculations including the 5% cash test at the ₹3 crore and ₹75 lakh limits.
