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Section 44AD lets small businesses pay tax on 6-8% of turnover without maintaining books of accounts or audit. Turnover limit: ₹3 crore. File ITR-4. Complete guide for FY 2025-26.
Section 44AD is a presumptive taxation scheme introduced to simplify tax compliance for small businesses. Instead of calculating actual profit from books of accounts, you declare a fixed percentage of your turnover as profit and pay tax on that.
Example: If your shop turnover is ₹50 lakh and you accept mostly digital payments, your deemed profit = 6% × ₹50L = ₹3 lakh. You pay income tax on ₹3 lakh only — regardless of actual profit or loss.
No need to maintain purchase/sales register, P&L account, or balance sheet. No tax audit required. File simple ITR-4.
| Details | Digital Payments | Cash Payments |
|---|---|---|
| Annual Turnover | ₹50,00,000 | ₹50,00,000 |
| Deemed Profit Rate | 6% | 8% |
| Deemed Profit (Taxable) | ₹3,00,000 | ₹4,00,000 |
| Less: Standard Deduction (if salaried too) | ₹75,000 | ₹75,000 |
| Less: 80C Deductions (old regime) | ₹1,50,000 | ₹1,50,000 |
| Net Taxable Income | ₹75,000 | ₹1,75,000 |
| Income Tax (old regime) | NIL | NIL (below ₹2.5L) |
| Parameter | Section 44AD | Regular Taxation |
|---|---|---|
| Applicable to | Small businesses (traders, shops) | All businesses |
| Turnover limit | Up to ₹3 crore | No limit |
| Deemed profit rate | 6% (digital) / 8% (cash) | Actual profit |
| Books of accounts | Not required | Mandatory |
| Tax audit | Not required | Required if turnover > ₹1Cr |
| ITR form | ITR-4 (Sugam) | ITR-3 |
| Advance tax | Single installment by March 15 | 4 installments |
| Deductions allowed | No business deductions (already in 6/8%) | All deductions allowed |
No. If you declare profit below 6% (digital) or 8% (cash), you must maintain full books of accounts and get tax audit done u/s 44AB. This defeats the purpose of 44AD. Either opt for 44AD and declare 6/8%, or do regular taxation.
If turnover exceeds ₹3 crore, you cannot use Section 44AD. You must maintain books of accounts. Tax audit is mandatory if turnover exceeds ₹1 crore (or ₹10 crore for 95%+ digital transactions).
No. Turnover for Section 44AD purposes is exclusive of GST. If your billing is ₹50L + ₹9L GST = ₹59L total, your turnover for 44AD is ₹50L only.
No. Under 44AD, the 6/8% deemed profit is assumed to cover all expenses including depreciation. You cannot separately claim depreciation. However, WDV of assets continues to reduce for future years.
CA files ITR-4 for your business. 44AD calculation, GST reconciliation, advance tax — all handled. July 31 deadline.
