44AD vs 44ADA: Presumptive Tax for Freelancers & SMEs
Presumptive taxation explained — Section 44AD for businesses, 44ADA for professionals, the turnover limits, the 8%/6%/50% rules and when it saves you tax.
If you run a small business or work as a professional or freelancer, presumptive taxation can spare you from maintaining full books and a tax audit. Two sections do the heavy lifting — 44AD for businesses and 44ADA for professionals — and they work quite differently. Here is how to tell which is yours.
Section 44AD — for small businesses
Who: a resident individual, HUF or partnership firm (not an LLP) running an eligible business — trading, manufacturing, retail, and most others. It does not apply to professions, commission or agency income, or the business of plying, hiring or leasing goods carriages, which is 44AE.
Turnover limit: up to ₹2 crore, extended to ₹3 crore where cash receipts are 5% or less of total turnover.
Presumptive income: 8% of turnover, reduced to 6% for the portion received through banking channels or digital modes. You can always declare more if your actual profit is higher.
The 5-year rule: once you opt into 44AD, if you opt out in any of the next five years, you are barred from 44AD for the following five years — and in those years, if your income exceeds the basic exemption, you must maintain books and get a tax audit. Do not dip in and out casually.
Section 44ADA — for professionals
Who: a resident individual or partnership firm (not an LLP) carrying on a specified profession — legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, and other notified professions, including certain IT and creative professionals.
Gross receipts limit: up to ₹50 lakh, extended to ₹75 lakh where cash receipts are 5% or less.
Presumptive income: 50% of gross receipts. Again, you can declare more if your real margin is higher.
The catch both share
Presumptive schemes assume a minimum profit. If your actual profit is lower than the presumptive percentage and your total income exceeds the basic exemption limit, you cannot simply declare the lower figure — you must maintain books of account and get a tax audit under Section 44AB. Presumptive taxation is a genuine simplification when you are profitable; it is not a way to under-declare.
Which one is yours?
| Your work | Limit | Section | Presumptive income |
|---|---|---|---|
| Trading, manufacturing, retail, shop | ₹2 cr (₹3 cr if cash ≤ 5%) | 44AD | 8% / 6% digital |
| Specified profession, freelancer, consultant | ₹50 L (₹75 L if cash ≤ 5%) | 44ADA | 50% of receipts |
| Plying, hiring or leasing goods carriages | Vehicle-based | 44AE | Per vehicle per month |
You file these on ITR-4 (Sugam). Note also that presumptive taxpayers pay advance tax in a single instalment by 15 March, rather than the usual four dates.
A worked feel for the numbers
A freelance designer with ₹40 lakh of receipts, mostly by bank transfer, under 44ADA declares 50% — ₹20 lakh — as income and pays tax on that: no books, no audit. A trader with ₹1.5 crore turnover received largely digitally, under 44AD, declares 6% — ₹9 lakh — as income. If either's actual profit is genuinely higher, they should declare the higher figure.
How CorporateWalla helps
We work out whether presumptive or regular filing is actually cheaper for you, keep you the right side of the turnover limits and the 5-year rule, and file the correct ITR — so you get the simplicity without a nasty audit surprise.
Frequently Asked Questions
Q: Can an LLP use 44AD or 44ADA?
A: No. Both exclude LLPs. They are available to resident individuals, HUFs (44AD) and partnership firms other than LLPs.
Q: What is the presumptive rate under 44AD?
A: 8% of turnover, or 6% for receipts through banking and digital channels.
Q: What is the limit for 44ADA?
A: ₹50 lakh gross receipts, or ₹75 lakh if cash receipts are 5% or less.
Q: Do I need a tax audit under presumptive tax?
A: Only if you declare profit below the presumptive percentage and your income exceeds the basic exemption — then books and a 44AB audit are required.