The presumptive schemes are the closest thing Indian tax law has to a flat tax for small business: declare a fixed percentage of receipts as income, skip the books, skip the audit, pay advance tax once. For a large number of traders, contractors and professionals in Mumbai and Thane they are the right answer. For a smaller number they are an expensive mistake, because the presumed profit is higher than the real one and the exit is locked for five years. Here is how to tell which group you are in.
Quick answer
- section 58 (44AD) deems 8% or 6%: Under section 58 (44AD), business income is deemed to be 8% of turnover, or 6 (6 of the 1961 Act)% of banking-channel receipts, for turnover up to ₹2 crore, or ₹3 crore where cash receipts are within 5%.
- section 58 (44ADA) deems 50%: Under section 58 (44ADA), notified professionals with gross receipts up to ₹50 lakh, or ₹75 lakh where cash receipts are not more than 5%, are taxed on 50% of receipts.
- Five-year lock under section 58 (44AD): Declaring profit below the presumptive rate within five years of opting for section 58 (44AD) bars the scheme for the following five years, with books and possibly an audit required.
- Not for low margins: Presumptive taxation may cost more where real margins are below the presumed 8%, 6% or 50%, and non-residents and LLPs are not eligible at all.
Section 58 (44AD) — businesses
Available to resident individuals, HUFs and partnership firms (not LLPs, not companies, not non-residents) carrying on any business other than plying goods carriages, agency business or commission income, with total turnover up to ₹2 crore — raised to ₹3 crore where cash receipts are not more than 5% of total receipts. Income is deemed to be 8% of turnover, or 6% of the part received through banking channels by the return due date. No further deduction for expenses, depreciation or partners' salary and interest is allowed; all are deemed to have been given. The taxpayer keeps no books under section 62 (44AA of the 1961 Act) and needs no audit under section 63 (44AB of the 1961 Act). Advance tax is paid in a single instalment by 15 March.
Section 58 (44ADA) — professionals
Available to resident individuals and partnership firms (again not LLPs) in the notified professions — legal, medical, engineering, architecture, accountancy, technical consultancy, interior decoration, film artists, company secretaries, information technology and others notified — with gross receipts up to ₹50 lakh, raised to ₹75 lakh where cash receipts are not more than 5%. Income is deemed to be 50% of gross receipts. The same book-keeping and audit exemptions and the single advance tax instalment apply.
The five-year lock under section 58 (44AD)
This is the rule that matters. A taxpayer who opts for section 58 (44AD) and then, in any of the next five years, declares profit lower than the presumptive rate is barred from section 58 (44AD) for the five years following that year — and must keep books and, if income exceeds the basic exemption, get audited for each of those years. Opting in casually and opting out when a bad year comes is therefore expensive. The lock does not apply to section 58 (44ADA): a professional may move in and out year by year, though declaring a lower profit in any year means books and, if income exceeds the basic exemption limit, an audit for that year.
Who should not opt in
| Situation | Why presumptive may cost more |
|---|---|
| Real net margin well below 8% / 6% — e.g. distributors, commodity traders | You pay tax on income you did not earn; keeping books and declaring the actual margin is cheaper even with an audit |
| Professional with heavy costs — staff, rent, equipment — leaving a margin below 50% | section 58 (44ADA) presumes 50%; declaring actual profit with books may halve the tax |
| Business with large depreciation or a loss year | Losses cannot be declared under the scheme and the section 58 (44AD) lock discourages leaving |
| Partners drawing salary and interest from a firm | Under section 58 (44AD) these are deemed allowed and cannot be deducted separately from the 8% |
| Non-residents and LLPs | Not eligible at all |
Who should opt in
Consultants, freelancers and IT professionals with margins above 50% and receipts under ₹75 lakh; small traders and service businesses with margins above 8% who want one return and no audit; and any business whose real profit is close to the presumed figure, where the saving in compliance cost outweighs the small difference in tax. For a freelancer billing ₹40 lakh with ₹5 lakh of costs, section 58 (44ADA) taxes ₹20 lakh instead of ₹35 lakh — a genuine benefit rather than merely a simplification.
Points that trip people up
- The turnover limit is per PAN across all eligible businesses, and GST turnover should reconcile to it.
- Interest and other income outside the business is taxed separately at normal rates.
- Presumptive income is still income: the taxpayer can claim Chapter VI-A deductions (section 123 (80C of the 1961 Act), section 126 (80D of the 1961 Act)) against it in the old regime.
- The scheme is a computation of business income, not a GST simplification — GST returns continue as normal.
- A section 58 (44AD) business receiving more than 5% in cash falls back to the ₹2 crore limit; track the cash ratio during the year.
Questions we are asked
Does the five-year lock apply to section 58 (44ADA)? No. The five-year lock does not apply to section 58 (44ADA), so a professional may move in and out year by year, though declaring a lower profit in any year means keeping books and, if income exceeds the basic exemption limit, an audit for that year.
When is advance tax due under presumptive taxation? By 15 March. Taxpayers under section 58 (44AD and 44ADA) pay advance tax in a single instalment by 15 March.
Can I claim section 123 (80C) deductions on presumptive income under section 58 (44AD)? Yes. Presumptive income is still income, so the taxpayer can claim Chapter VI-A deductions such as section 123 (80C) and section 126 (80D) against it in the old regime.
Can partners' salary and interest be deducted under section 58 (44AD)? No. Under section 58 (44AD), expenses, depreciation and partners' salary and interest are deemed to have been allowed within the presumed income and cannot be deducted separately from the 8%.
The test we run
We compare your actual margin against the presumed rate for the last three years, model the five-year lock, and only then recommend opting in or keeping books. Income tax services or contact us.
Disclaimer
This note is for general information and knowledge purposes only. It describes the position as at 23 October 2026 and is not legal, tax or professional advice. Tax law changes frequently; please confirm the current position with us before acting.
Tax, GST and business setup advisors — Mumbai and Thane. Contact us to discuss your situation.
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