Quick answer: Presumptive taxation lets a small resident business declare 8% of turnover as profit (6% for receipts through bank or digital modes) without keeping full books, if turnover is up to ₹2 crore, or ₹3 crore when cash receipts are 5% or less. Professionals such as doctors, designers and consultants can declare 50% of receipts up to ₹50 lakh, or ₹75 lakh with 5% or less in cash. These were Sections 44AD and 44ADA; from 1 April 2026 they sit in Section 58 of the Income-tax Act, 2025. Figures are as of October 2026.
What changed on 1 April 2026
The Income-tax Act, 2025 replaced the Income-tax Act, 1961 from 1 April 2026. Two changes matter here:
- New section number. Sections 44AD (business), 44ADA (professions) and 44AE (goods vehicles) have been consolidated into a single Section 58, written as a table.
- “Tax year”. The old split between “previous year” and “assessment year” is replaced by a single “tax year”.
The limits and deemed-profit percentages have been carried over unchanged, according to the commentary we read. Your return for FY 2025-26 (filed in 2026) still uses the old section names. For income earned from 1 April 2026, your CA will cite Section 58. Where we refer to old section numbers below, it is because that is how most forms, banks and articles still describe them.
Who can use it
| Business scheme (old 44AD) | Professional scheme (old 44ADA) | |
|---|---|---|
| Who | Resident individual, HUF or partnership firm | Resident in a specified profession |
| Not allowed | LLPs and companies; commission or brokerage income; agency business; specified professions; goods vehicle operators (they have a separate scheme) | LLPs and companies |
| Turnover or receipts limit | ₹2 crore | ₹50 lakh |
| Higher limit if cash receipts are 5% or less | ₹3 crore | ₹75 lakh |
| Deemed profit | 8% of turnover; 6% of receipts through bank or digital modes | 50% of gross receipts |
| You may declare more | Yes | Yes |
Specified professions (from the Income Tax Department’s list): legal, medical, engineering, architecture, accountancy, technical consultancy, interior decoration, film artist, authorised representative, company secretary and information technology. A freelance interior designer, a home-clinic doctor or an independent IT consultant fits here. A boutique owner, caterer or trader uses the business scheme.
For the 5% cash test, a cheque or bank draft that is not account payee counts as cash.
The digital receipts benefit
Under the business scheme, profit is deemed at 6% instead of 8% on receipts by account payee cheque, account payee draft, electronic clearing through a bank, or other prescribed electronic modes such as UPI. Commentary on Section 58 notes the 6% rate applies to such receipts received during the tax year or up to the return due date.
A simple illustration (business scheme, as of October 2026):
| Turnover | Received digitally | Received in cash | Deemed profit |
|---|---|---|---|
| ₹40 lakh | ₹40 lakh | nil | ₹2.4 lakh (6%) |
| ₹40 lakh | ₹30 lakh | ₹10 lakh | ₹1.8 lakh + ₹0.8 lakh = ₹2.6 lakh |
| ₹40 lakh | nil | ₹40 lakh | ₹3.2 lakh (8%) |
For a professional with ₹30 lakh of receipts, deemed income is ₹15 lakh (50%). Tax is then worked out on this figure at your normal slab rates, along with any other income.
Moving customers to UPI or bank transfer cuts your taxable profit and keeps your cash share under 5%, which unlocks the higher ₹3 crore or ₹75 lakh limits.
What you give up, and the rules that come with it
- No expense claims. You cannot separately deduct rent, salaries, depreciation or other business expenses. The deemed figure is treated as profit after all of these.
- Asset values. The written down value of your assets is calculated as if depreciation had been claimed each year.
- The five-year lock (business scheme). If you use the scheme one year and then declare lower profit outside it in any of the next five years, you cannot return to it for the following five years. During that period, if your income exceeds the basic exemption limit, you must keep books and get a tax audit. The new Act carries a similar rule in Section 58(7).
- Declaring less than the deemed rate. If you want to show profit below 6%, 8% or 50% and your income is above the exemption limit, you need full books and a tax audit.
How to use it, step by step
- Check eligibility: your entity type, whether your activity is a business or a specified profession, and last year’s turnover.
- Track receipts by mode through the year: bank and digital versus cash. A separate business bank account makes this easy.
- Pay advance tax in one instalment. The Income Tax Department says presumptive taxpayers pay 100% of advance tax by 15 March, instead of four instalments. Advance tax applies if your tax for the year is ₹10,000 or more.
- File your return. Eligible presumptive taxpayers generally use ITR-4 (Sugam). Report turnover, the split of digital and cash receipts, and the deemed profit.
- Keep basic records even though full books are not needed: bank statements, sales register or invoices, and GST returns if registered. The tax department compares these with your return.
Who should use it
A good fit if:
- your real profit margin is higher than 6% or 8% (most small traders, resellers, home food and craft businesses) or higher than 50% for professionals (consultants, designers, tutors with few expenses)
- you want low accounting costs and no tax audit
- most of your receipts are digital
Think twice if:
- your real margin is thin, for example a wholesale trader earning 3% on turnover, because the scheme taxes you on more than you earn. You can opt out, but then the five-year lock may apply
- you are an LLP or company. The scheme is not available
- you have a large loss or heavy investment in a year, which you cannot claim under the scheme
For women running two activities: if you run a boutique and also give paid interior styling advice, the trading income and the professional income are assessed under different parts of the scheme. Ask your CA to split them correctly.
Common mistakes
- Treating GST turnover and income tax turnover as different numbers without reconciling them.
- Using a personal account for business so the cash and digital split is unclear.
- Assuming an LLP can use the scheme.
- Missing the 15 March advance tax date and paying interest.
- Opting out for one year to show a loss without realising the five-year lock.
FAQ
Q: What is the new section number for 44AD and 44ADA?
A: Section 58 of the Income-tax Act, 2025, effective from 1 April 2026. It combines the old 44AD, 44ADA and 44AE into one table.
Q: Did the limits change under the new Act?
A: Not according to the analysis we read. The ₹2 crore or ₹3 crore and ₹50 lakh or ₹75 lakh limits, and the 6%, 8% and 50% rates, carry over.
Q: I am a home baker with ₹15 lakh turnover, mostly UPI. How much is deemed profit?
A: At 6% on digital receipts, about ₹90,000, plus 8% on any cash receipts. You can declare more if your real profit is higher.
Q: Can a freelance graphic designer use the 50% scheme?
A: Only if the work falls within a specified profession, such as information technology or technical consultancy. Confirm with a CA, as classification depends on the work done.
Q: Do I need to keep books of account?
A: Not full books under the scheme, but keep invoices and bank records to support your turnover.
Q: Is presumptive taxation the same as the GST composition scheme?
A: No. Presumptive taxation is an income tax scheme. GST composition is a separate GST option with its own limits.
Official links
- Income Tax Department: https://www.incometaxindia.gov.in
- Section 44AD text (Income-tax Act, 1961): https://incometaxindia.gov.in/w/section-44ad-31
- Maintenance of books and specified professions: https://www.incometaxindia.gov.in/w/maintenance-of-books-of-accounts
- E-filing portal (returns, advance tax): https://www.incometax.gov.in
Last checked: October 2026. Rules, limits and fees change; confirm with the official source before you apply. This guide is general information, not legal, tax or financial advice.
Sources: Income Tax Department, Section 44AD (2025); Income Tax Department, Maintenance of books of accounts (October 2026); Income Tax Department, Advance Tax guide (January 2026); ICAI NIRC, The New Income Tax Act 2025 (May 2026); TaxGuru, Analysis of presumptive taxation under Section 58 (May 2026); Taxscan, Section 58 vs Section 44AD (June 2026).
