To reduce the compliance burden for small taxpayers, the Income Tax Act, 1961 offers a Presumptive Taxation Scheme under Sections 44AD, 44ADA, and 44AE. These provisions are designed to simplify the taxation process for small businesses, professionals, and transport operators by allowing them to pay tax on estimated income, rather than maintaining detailed books of accounts and undergoing audit.
This article explains each section in detail, their conditions, advantages, and compliance requirements, followed by a mnemonic to help you recall the key points.
What is Presumptive Taxation?
Presumptive taxation allows eligible taxpayers to declare income at a fixed percentage of turnover or receipts, without the need to maintain books of account. This approach aims to:
- Simplify tax compliance for small businesses and professionals
- Encourage voluntary compliance
- Promote ease of doing business in India
Let’s examine each section in detail.
Section 44AD – Presumptive Taxation for Small Businesses
Eligible Assessees:
- Resident Individuals
- Hindu Undivided Families (HUFs)
- Partnership Firms (excluding LLPs)
The scheme is not available for companies, LLPs, or persons earning commission or brokerage income.
Applicability:
- Business income (not applicable to professionals)
- Turnover or gross receipts up to ₹3 crore (enhanced from ₹2 crore effective AY 2024–25)
Deemed Income:
- 8% of total turnover or gross receipts
- 6% if the amount is received through digital modes or banking channels
Key Conditions:
- The assessee should not have claimed deductions under Sections 10A, 10AA, 10B, 10BA, or Chapter VI-A under Part C
- If the scheme is opted for one year and then not followed in any of the next five years, the assessee cannot opt again for the next five years
Benefits:
- No requirement to maintain books of accounts under Section 44AA
- No requirement to get accounts audited under Section 44AB
Section 44ADA – Presumptive Taxation for Professionals
Eligible Assessees:
- Resident individuals engaged in specified professions as defined under Section 44AA(1), including:
- Legal
- Medical
- Engineering
- Architectural
- Accountancy
- Technical consultancy
- Interior decoration
- Other notified professions (e.g., film artists)
Applicability:
- Gross receipts up to ₹75 lakhs (increased from ₹50 lakhs from AY 2024–25)
Deemed Income:
- 50% of total gross receipts is deemed as income
Key Conditions:
- Assessee is not required to maintain books of accounts or get audit done if declaring income at or above 50%
- If actual income is below 50% and the total income exceeds the basic exemption limit, books must be maintained and audit is mandatory
Section 44AE – Presumptive Taxation for Transporters
Eligible Assessees:
- Any person (including companies or firms) owning not more than 10 goods carriages at any time during the year
Applicability:
- Income from plying, hiring, or leasing goods carriages
Deemed Income:
- ₹1,000 per ton per month for heavy goods vehicles (GVW > 12,000 kg)
- ₹7,500 per month per vehicle for other vehicles
The deemed income is calculated per vehicle, per month (or part of the month), during which the vehicle is owned.
Benefits:
- No requirement to maintain books of accounts
- No audit needed if presumptive income is declared
Comparative Table: 44AD vs 44ADA vs 44AE
| Particulars | Section 44AD | Section 44ADA | Section 44AE |
|---|---|---|---|
| Eligible Assessee | Individual, HUF, Firm | Individual only | Any person |
| Type of Income | Business | Professional | Transport business |
| Turnover Limit | Up to ₹3 crore | Up to ₹75 lakhs | Max 10 vehicles |
| Deemed Profit Rate | 6%/8% | 50% | ₹1,000/ton or ₹7,500/month |
| Books Required | No | No (if declaring 50%) | No |
| Audit Requirement | No | Only if income < 50% | No |
| ITR Form | ITR-4 | ITR-4 | ITR-4 |
Key Compliance Requirements
- Return Filing: Presumptive income must be declared using ITR-4 (Sugam).
- Advance Tax: Advance tax under these sections must be paid in one installment by 15th March of the financial year.
- No Further Deductions: No additional business expense deductions are allowed, as income is presumed.
- Deductions under Chapter VI-A: Permitted (like 80C, 80D, etc.) from total income.
Advantages of Presumptive Taxation
- Saves time and cost of maintaining detailed accounts
- Avoids the need for audits for small taxpayers
- Simplified filing process with reduced compliance burden
- Encourages formalization of small businesses
- Incentivizes digital transactions with reduced tax rate (6%)
Mnemonic to Remember – “BAD-E”
To quickly recall the three key presumptive tax sections, use the mnemonic:
B – Business income → Section 44AD
A – Artistic/Professional income → Section 44ADA
D – Drivers/Transporters → Section 44AE
E – Estimated Income Basis under all three sections
This helps students and professionals easily identify:
- Applicability
- Assessee eligibility
- Presumptive rates
- Thresholds
