For small businesses, freelancers, and professionals in India, the presumptive taxation schemes under Section 44AD and Section 44ADA provide a simple, low-compliance way to file taxes without maintaining detailed books of accounts.
Budget 2025 has now enhanced the turnover threshold for presumptive tax eligibility up to ₹3 crore in certain cases, starting FY 2025–26.
This blog explains the difference between 44AD and 44ADA, the new turnover limits, and how to choose the best option.
Legal Reference
- Section 44AD and Section 44ADA, Income Tax Act, 1961
- Updated by Finance Act, 2024 applicable from AY 2025–26
What is Presumptive Taxation?
Under presumptive schemes:
- You declare a fixed percentage of gross receipts as income
- No need to maintain detailed books
- No mandatory tax audit (subject to conditions)
Section 44AD: For Small Businesses
- Eligible for residents running a business (not profession)
- Eligible turnover:
- Up to ₹2 crore generally
- Extended to ₹3 crore if cash receipts are ≤5% of total turnover
Presumptive income: 8% of turnover (6% if receipts via digital means)
Section 44ADA: For Professionals
- Eligible for residents engaged in specified professions like:
- Legal, medical, engineering, architecture, accountancy, technical consultancy, interior decoration, etc.
- Eligible gross receipts:
- Up to ₹50 lakh generally
- Extended to ₹75 lakh if cash receipts are ≤5% of total receipts
Presumptive income: 50% of gross receipts
New Turnover Limits from FY 2025–26
| Section | Old Limit | New Limit (if cash receipts ≤5%) |
|---|---|---|
| 44AD | ₹2 crore | ₹3 crore |
| 44ADA | ₹50 lakh | ₹75 lakh |
Example: Choosing Between 44AD and 44ADA
Example 1:
Mr. Ramesh runs a local retail store with ₹2.7 crore turnover, 98% digital.
- Can opt for 44AD and declare 6% income = ₹16.2 lakh.
Example 2:
Ms. Priya is a freelance architect earning ₹68 lakh, mostly online payments.
- Can opt for 44ADA and declare 50% income = ₹34 lakh.
Key Differences: 44AD vs 44ADA
| Feature | 44AD | 44ADA |
|---|---|---|
| Who Can Avail | Businesses | Professionals |
| Turnover/Receipts Limit | ₹2 Cr / ₹3 Cr | ₹50 Lakh / ₹75 Lakh |
| Presumptive Income % | 8% (or 6%) | 50% |
| Advance Tax | Full by 15th March | Full by 15th March |
| Audit Requirement | Only if income lower than presumptive and taxable income > basic exemption | Same |
Compliance Benefits
- File ITR-4 (Sugam) — simplified form
- No requirement for maintaining detailed accounting books
- No tax audit unless income lower than presumed and taxable income exceeds exemption limit
Important Points to Remember
- You must opt-in for presumptive every year — it is not automatic
- If you opt out of 44AD after choosing it once, you must maintain books and get audit for next 5 years (not for 44ADA)
- Declare full turnover in GST filings separately (presumptive scheme is for income tax)
Conclusion
The extended turnover limits for Section 44AD and 44ADA make presumptive taxation more attractive than ever for MSMEs, freelancers, and service professionals.
Choosing the right section can dramatically reduce your compliance burden and simplify your tax filing for FY 2025–26.
Call to Action and Disclaimer
Need help choosing between 44AD and 44ADA or filing your taxes under the new limits?
Schedule a meeting with our Chartered Accountant, Anshul Goyal, by visiting:
Disclaimer: I am Anshul Goyal, a Chartered Accountant licensed with ICAI, India. This content is for general informational purposes and does not substitute personalized legal or tax advice.
Frequently Asked Questions
1. Can a freelancer choose 44AD instead of 44ADA?
No. Freelancers are treated as professionals under 44ADA.
2. What if cash receipts exceed 5%?
You revert to the old turnover limit (₹2 crore or ₹50 lakh).
3. Can I claim actual business expenses if I choose 44AD or 44ADA?
No. Presumptive income is deemed after expenses.
4. Do I need to pay advance tax under presumptive schemes?
Yes. Full advance tax must be paid by March 15.
5. Is audit mandatory if my declared income is higher than presumptive income?
No. Audit is only needed if you declare income lower than presumptive norms and your income exceeds basic exemption limit.