Section 44AD Presumptive Taxation: Pay Tax on 6% of Sales

Section 44AD lets a small business skip detailed books and pay tax on a fixed share of sales: 6% of sales received through a bank or online, and 8% of the rest. It is open to resident individuals, HUFs and partnership firms with turnover up to Rs 2 crore, or Rs 3 crore when cash receipts are 5% or less.

What is presumptive taxation under section 44AD?

Normally a business works out profit as sales minus expenses, and has to keep books to prove it. Presumptive taxation replaces that sum with an assumption. The law presumes your profit is a set percentage of turnover, and you pay tax on that figure.

Why does the rule exist? The Income Tax Department says it is meant to free small taxpayers from keeping books of account and getting them audited. For a seller doing a few lakh a month, that saves real time and an auditor's fee.

The price is simple. Once you declare the presumptive profit, no further business expense or depreciation can be claimed against it. The percentage is treated as profit after every expense.

Who can use it, and who cannot?

A cheque or draft that is not account payee counts as cash for the 5% test. So does a bearer cheque from a wholesale buyer.

Selling on Amazon, Flipkart or Meesho? Your payouts land in your bank account, so for most online sellers nearly all turnover falls in the 6% bucket and the Rs 3 crore limit applies.

Which year, which section?

The return you file in 2026 is for FY 2025-26 (assessment year 2026-27) and follows section 44AD of the Income-tax Act, 1961. Income earned from 1 April 2026 falls under the Income-tax Act, 2025, where the same scheme sits in section 58, at serial number 1 of its table. The limits and the 6% and 8% rates read the same in both, as shown on the department's website. The new Act speaks of a tax year in place of previous year and assessment year.

A worked example

Meena sells kurtis on two marketplaces and at a weekend stall. In FY 2025-26 her turnover is Rs 60,00,000. Marketplace payouts and UPI come to Rs 56,00,000. Cash at the stall is Rs 4,00,000.

• Cash share: Rs 4,00,000 out of Rs 60,00,000 is 6.7%. That is above 5%, so her limit is Rs 2 crore. She is well inside it.
• 6% of Rs 56,00,000 is Rs 3,36,000.
• 8% of Rs 4,00,000 is Rs 32,000.
• Presumptive income: Rs 3,68,000.

If this is her only income, she is below the Rs 4,00,000 nil slab of the new regime for FY 2025-26 and pays no income tax. Had she kept books and shown a real margin of 15%, her profit would have been Rs 9,00,000.

That gap is why the scheme is popular. It is also why you should be honest with yourself: the law says the presumptive figure or the profit you claim to have actually earned, whichever is higher. Your bank balance, assets and loan applications should make sense next to the income you declare.

How to use section 44AD, step by step

1. Add up turnover for the year from your sales reports and bank statements. Check it against your GST returns and Form 26AS and AIS, because the department sees those figures too.
2. Split the turnover into banked or digital receipts and cash receipts. Test the 5% cash condition.
3. Apply 6% and 8%. Declare a higher figure if your real profit is higher.
4. Pay the whole advance tax by 15 March of the financial year. For tax year 2026-27 that is 15 March 2027. Tax paid up to 31 March still counts as advance tax, but interest under section 234C runs for the delay.
5. File ITR-4 (Sugam) if you are a resident and your total income is up to Rs 50 lakh. Otherwise use ITR-3. See which ITR form to file.

For FY 2025-26 the due date for a business without audit was 31 August 2026. If you missed it, a belated return is still possible.

The five-year rule: the mistake people usually make

Many sellers treat section 44AD as a switch they can flip each year. It is not. If you declare income under 44AD in one year and then, in any of the next five years, declare profit below the presumptive rate, you lose the scheme for the five years after that.

The department's own example: a person uses 44AD for FY 2022-23 and steps out for FY 2023-24. The scheme is then closed to that person for assessment years 2025-26 to 2029-30.

What does stepping out cost? If your total income is above the basic exemption limit, you must keep books of account and get a tax audit under section 44AB, starting from the year you step out. An audit fee each year can easily exceed the tax you hoped to save by showing a lower margin.

So decide once, with numbers. If your real margin after marketplace fees, shipping and returns is steadily below 6%, presumptive tax will overcharge you. Books and an audit may then be the cheaper path. If your margin is above 6%, the scheme is usually the easy choice.

Does 44AD change your GST or regime choice?

No. Section 44AD is only about income tax. GST registration, GSTR-1 and GSTR-3B carry on as before, and the turnover in your income tax return should tie up with them.

You still pick between the new and old tax regime. Deductions such as section 80C remain available against presumptive income if you opt for the old regime, but a person with business income must file Form 10-IEA to do that. Our note on old vs new tax regime covers the switch rules.

Should you do this yourself?

If you have one business, clean bank records and turnover well under the limit, yes. ITR-4 is a short form. Take help if your cash share is close to 5%, your turnover is near Rs 2 crore or Rs 3 crore, you earn commission alongside sales, or you are thinking of leaving the scheme.

Frequently asked questions

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