Presumptive taxation scheme: What are the 3 sections and who can opt for them — key income rules explained

The 31 August deadline for filing ITR -4 for AY 2026-27 is approaching. Taxpayers with income from eligible businesses, professions, or goods-carriage operations can opt for the presumptive taxation scheme under Sections 44AD, 44ADA, and 44AE.

The scheme simplifies tax compliance by allowing eligible taxpayers to declare income at a prescribed rate, reducing the need to maintain detailed books of account and undergo tax audits.

Here is a look at who can opt for each section, the applicable limits, and the key conditions taxpayers should know.

Under the normal system, taxpayers generally calculate taxable business or professional income after accounting for eligible expenses. Under presumptive taxation , eligible taxpayers can declare income using a specified formula or rate.

Section 44AD is available to a resident individual, resident HUF or resident partnership firm other than an LLP carrying on an eligible business.

Income is generally presumed at 8% of turnover or gross receipts. For receipts received through specified digital or banking modes, the presumptive rate is 6%. An eligible taxpayer can also voluntarily declare a higher income.

Gross receipts mean the total amount earned from business or professional activities before deducting any expenses.

Once the presumptive income is declared, separate deductions for business expenses or depreciation cannot be claimed.

Section 44ADA applies to a resident individual or resident partnership firm other than an LLP engaged in specified professions.

The gross-receipts limit is ₹ 50 lakh in a financial year, which increases to ₹ 75 lakh where cash receipts do not exceed 5% of total gross receipts.

Under the scheme, 50% of gross receipts is presumed to be taxable professional income. The taxpayer can declare a higher amount but cannot claim additional expenses after opting for the scheme.

An eligible professional opting for Section 44ADA does not have to maintain books of account under Section 44AA for that profession or undergo a tax audit merely because of the presumptive scheme.

However, if income is declared below 50% and total income exceeds the basic exemption limit, books and tax audit requirements can apply.

Section 44AE is meant for any taxpayer, including an individual, HUF, firm or company, engaged in plying, hiring or leasing goods carriages. The taxpayer must not own more than 10 goods vehicles at any time during the year.