Section 44AD Presumptive Tax Explained for Small Businesses (and What Changes Under the New Act)

This guide is for small shopkeepers, traders, contractors and professionals in Bihar who want a simple, legal way to pay income tax without maintaining full books of accounts. It explains the Section 44AD presumptive taxation scheme and its cousin 44ADA for professionals: who can use it, the turnover limits, the 6% and 8% rule, which ITR form to file, advance tax, a worked example for a Bihar shop, and what the new Income-tax Act, 2025 changes from 1 April 2026.

What is presumptive taxation under Section 44AD?

Under normal rules, a business has to calculate actual profit from books of accounts: sales minus purchases, rent, salaries, electricity and so on. Many small shops do not keep such detailed books.

Section 44AD offers a shortcut. The law presumes your profit to be a fixed percentage of your turnover. You pay tax on that presumed income, and in return:

• You do not need to maintain detailed books of accounts under the income tax law for that business
• You do not need a tax audit
• You file the simpler ITR-4 form in most cases
• You can pay advance tax in a single instalment

You are always allowed to declare a higher income than the presumed figure. What you cannot do is declare less without switching to regular books.

Who can use Section 44AD?

The scheme is available to:

• Resident individuals, such as a proprietor running a kirana, hardware, cloth, sweets or electronics shop
• Hindu Undivided Families (HUFs)
• Partnership firms (but not LLPs)

It is not available to companies, LLPs, people earning commission or brokerage income, or for professions like doctors, lawyers, CAs and engineers (they have a separate scheme, 44ADA, explained below).

Section 44AD turnover limit and the 6%/8% rule

₹2 crore or ₹3 crore?

For FY 2025-26:

• The basic limit is ₹2 crore of total turnover or gross receipts.
• The limit becomes ₹3 crore if the total amount received in cash during the year is not more than 5% of total turnover.

This higher limit rewards shops that take most payments by UPI, card or bank transfer. A wholesaler in Patna with ₹2.6 crore turnover can use 44AD only if cash receipts are ₹13 lakh or less (5% of ₹2.6 crore).

The 6% and 8% rule

Your presumed income is calculated separately for two kinds of receipts:

• 8% of turnover received in cash (or any mode other than those below)
• 6% of turnover received through banking or digital modes, such as account payee cheque or draft, bank transfer (NEFT, RTGS, IMPS), UPI and other prescribed electronic modes, received during the year or before the return due date

So every sale you take on UPI instead of cash reduces your presumed income slightly. Our guide on UPI and QR payments for small businesses explains how to set up clean digital collections.

Section 44ADA for professionals

Professionals such as doctors, lawyers, architects, engineers, accountants, interior decorators, technical consultants and some other notified professions have their own presumptive scheme:

• Gross receipts up to ₹50 lakh, or up to ₹75 lakh if cash receipts are not more than 5% of total receipts
• Income presumed at 50% of gross receipts
• Available to resident individuals and partnership firms (other than LLPs)

A physiotherapist in Muzaffarpur with ₹20 lakh receipts can declare ₹10 lakh as income under 44ADA and file ITR-4.

Worked examples: how much tax will a Bihar shop pay?

Example 1: a kirana shop in Dehri

Rakesh runs a kirana shop in Dehri-on-Sone. In FY 2025-26 (April 2025 to March 2026):

• Total turnover: ₹1.2 crore
• Received through UPI and bank: ₹84 lakh
• Received in cash: ₹36 lakh

Cash is 30% of turnover, so the higher ₹3 crore limit does not apply, but his turnover is under ₹2 crore, so 44AD is available.

Presumed income:

• 6% of ₹84 lakh = ₹5,04,000
• 8% of ₹36 lakh = ₹2,88,000
• Total business income = ₹7,92,000

Under the new tax regime slabs for FY 2025-26 (nil up to ₹4 lakh, 5% from ₹4 lakh to ₹8 lakh), tax works out to ₹19,600 before rebate. Because his total income is below ₹12 lakh, the Section 87A rebate brings his tax to zero, assuming he has no other income such as capital gains taxed at special rates. He must still file his return to claim this.

Example 2: a wholesaler in Patna

Shabnam runs a wholesale stationery business in Patna with FY 2025-26 turnover of ₹2.8 crore. Only ₹10 lakh (about 3.6%) came in cash, so the ₹3 crore limit applies.

• 6% of ₹2.7 crore = ₹16,20,000
• 8% of ₹10 lakh = ₹80,000
• Total business income = ₹17,00,000

Under the new regime slabs (5% for ₹4-8 lakh, 10% for ₹8-12 lakh, 15% for ₹12-16 lakh, 20% for ₹16-20 lakh), tax is ₹1,40,000 plus 4% cess of ₹5,600, so ₹1,45,600. No 87A rebate applies because income is above ₹12 lakh. She could have paid this entire amount as advance tax by 15 March 2026.

These examples assume the new regime, no other income and no deductions. Your own numbers will differ, so use the tax calculator on incometax.gov.in or ask a tax professional.

Which ITR form, and by when?

• ITR-4 (Sugam): for resident individuals, HUFs and firms (other than LLPs) with total income up to ₹50 lakh who opt for 44AD, 44ADA or 44AE. For the 2026 filing season it also allows long-term capital gains under Section 112A up to ₹1.25 lakh.
• ITR-3: for individuals with business income who do not qualify for ITR-4, for example income above ₹50 lakh.

After the Budget 2026 change, the due date for non-audit ITR-3 and ITR-4 filers for FY 2025-26 was 31 August 2026. If you missed it, a belated return can generally be filed up to 31 December 2026 with a late fee. Check the e-filing portal for the latest dates.

Advance tax and the 5-year rule

Advance tax in one instalment

Regular taxpayers pay advance tax in four instalments. If you opt for 44AD or 44ADA, you may pay 100% of your advance tax by 15 March of the financial year. If your total tax for the year is under ₹10,000, advance tax is not required. Paying late means interest.

The 5-year rule: do not jump in and out

If you opt for 44AD in one year and then declare a lower profit (not following the scheme) in any of the next five years, you generally cannot come back to 44AD for the following five years. In that period you must keep books and get them audited if your income is above the basic exemption limit. So choose carefully and stay consistent.

What changes under the new Income-tax Act, 2025?

The Income-tax Act, 2025 replaced the Income-tax Act, 1961 from 1 April 2026. For small businesses, the key points are:

• Section 58 replaces 44AD, 44ADA and 44AE. The three presumptive schemes are consolidated into one section with a table covering business (8%/6%, ₹2 crore or ₹3 crore limit), specified professions (50%, ₹50 lakh or ₹75 lakh limit) and goods carriages.
• "Tax year" replaces "previous year" and "assessment year." April 2026 to March 2027 is simply tax year 2026-27.
• Section 63 replaces 44AB for tax audit, and the old audit forms 3CA, 3CB and 3CD are being consolidated into a single new form.
• Timing matters. Your return for FY 2025-26 (filed in 2026) is under the old Act and its section numbers. From tax year 2026-27 onwards, returns will refer to Section 58 of the new Act.

The substance of the scheme, the limits and the percentages, carried over. Expect new form names and section references on the e-filing portal, and confirm details there when you file in 2027.

Checklist for using 44AD correctly

• Keep a monthly record of total sales, split into cash and digital
• Save bank and UPI statements for the full year
• Maintain basic records of purchases and stock even if not mandatory
• Link PAN and Aadhaar, and keep your mobile number updated
• Check Form 26AS and AIS for any TDS or TCS
• Pay advance tax by 15 March if your tax will exceed ₹10,000
• File ITR even when tax is zero

A simple daily register helps; see our Hindi guide on keeping shop accounts and our guide to billing software and GST invoicing. Remember that GST is a separate law with its own registration threshold; see our GST registration guide for Bihar.

Next steps

Work out last year's cash and digital turnover, check whether you fall under the ₹2 crore or ₹3 crore limit, and decide on 44AD before filing. A filed ITR also helps when you apply for a business loan. Hindi readers can read छोटे व्यापारी ITR कैसे भरें. And if customers still cannot find your shop online, list your business free on Bihar Directory.

This is general information, not legal or tax advice. Confirm current rules on incometax.gov.in or with a chartered accountant or tax practitioner.