Presumptive taxation under 44AD and 44ADA (s.58): who can opt, what it costs, and when a tax audit follows

The short answer

A resident individual, HUF or firm other than an LLP that meets the conditions below can declare business income presumptively, under s.44AD of the 1961 Act, s.58(2), Sl. No. 1 of the Income-tax Act, 2025, where turnover is not over ₹ 2,00,00,000, or ₹ 3,00,00,000 where cash receipts do not exceed 5 percent of it. A resident individual or such a firm, not a HUF, can do the same for a specified profession, under s.44ADA, s.58(2), Sl. No. 3, on gross receipts not over ₹ 50,00,000, or ₹ 75,00,000 on the same cash test. A company or an LLP is outside both.

In income, it costs the gap between the deemed figure and the books profit. The deemed figure is 6 percent of turnover received by a specified banking or online mode and 8 percent of the rest for a business, 50 percent of gross receipts for a profession, or the profit actually earned, whichever is higher. On ₹ 1,60,00,000 of turnover with ₹ 7,00,000 of books profit the scheme declares ₹ 9,76,000, ₹ 2,76,000 more; on ₹ 2,80,00,000 with ₹ 20,00,000 of profit both routes declare the same. The percentage is a floor, not a rate.

A tax audit, under s.44AB of the 1961 Act, s.63 of the 2025 Act, follows on the books route where turnover exceeds ₹ 1,00,00,000, or ₹ 10,00,00,000 where cash receipts and cash payments are each within 5 percent, or where a professional's gross receipts exceed ₹ 50,00,000. Inside the scheme it follows where profit is declared below the deemed figure and total income exceeds the maximum amount not chargeable to income-tax, under s.44AD or s.44ADA, s.58(3). For a client the entry reaches, declaring at or above the deemed figure switches the audit off whatever the turnover, under s.44AB, first proviso of the 1961 Act, s.63(2) of the 2025 Act.

The rule in plain words

Beyond residence and the assessee test, the business entry needs, under s.58(11), no commission or brokerage, no agency business or specified profession, and no deduction claimed under Chapter VIII-C for the year. For FY 2025-26 (AY 2026-27) the calculator asks about s.10AA or Chapter VI-A, named wide because the 1961 wording behind it was not read. Fail any one and the whole business is out. The profession entry asks only residence, the individual or firm test and the receipts limit.

The 2025 Act sets the computation out in a Table, and the calculator calls its result, before the comparison with books, the Table figure. The 6 percent half is turnover received by a specified banking or online mode during the year or before the due date under s.263(1); cash and the rest take 8 percent. A cheque or draft that is not account payee counts as cash for the 5 percent test, under s.58(9), so a client who banks every rupee can still fail it.

Three things come with the scheme. No loss, allowance or deduction is set against the presumptive income, under s.58(4); the written down value is computed as if depreciation had been allowed, under s.58(6); and partner salary and interest is deductible against it on the goods carriage entry alone, under s.58(5), so a firm on the business or profession entry gives it up.

Deemed income against books: the business entry (was 44AD)

Six resident individuals on the business entry, s.58(2), Sl. No. 1, in tax year 2026-27; the cash shown is the only turnover not banked, so it takes 8 percent and the rest 6 percent.

Cash within 5 percent lifts the limit from ₹ 2,00,00,000 to ₹ 3,00,00,000: ₹ 14,00,000 on ₹ 2,80,00,000 is the most the test allows and keeps that row in, while ₹ 3,20,00,000 is over the raised limit itself. An extra of ₹ 0 means the books profit was higher.

Deemed income against books: the profession entry (was 44ADA)

Five resident individuals on the profession entry, s.58(2), Sl. No. 3, in tax year 2026-27, the Table figure being 50 percent of gross receipts.

The last two rows differ only in cash: ₹ 7,20,000 on ₹ 72,00,000 fails the 5 percent test and leaves the limit at ₹ 50,00,000, while ₹ 3,60,000, the most the test allows, lifts it to ₹ 75,00,000.

The audit position on each route

Six resident individuals in tax year 2026-27, with the maximum amount not chargeable to income-tax at the calculator's default of ₹ 4,00,000, each worked on the books route and declaring as per the Table.

The ₹ 3,50,00,000 business is outside the scheme yet unaudited: both its cash tests pass, so it is measured against ₹ 10,00,00,000. The ₹ 4,00,000 default was not verified and moves with the regime and with age; put your client's own in.

Conditions and edge cases a CA gets asked about

The five year bar, under s.44AD of the 1961 Act, s.58(7) of the 2025 Act, reaches the business entry alone. Declare under it, then declare otherwise in any of the five tax years that follow, and the scheme is shut for the five tax years after the year you left. A client who declared for 2026-27 and declares below the Table figure in 2029-30 is inside the window, 2027-28 to 2031-32, and is barred from 2030-31 to 2034-35; on ₹ 4,50,000 of total income, over the ₹ 4,00,000 default, the calculator also marks books and an audit as required in those years, under s.58(8).

The bar needs a contravention, not just membership of the window: the same client still declaring under the entry in 2029-30 is not barred.

Declaring below the Table figure is allowed. The books and audit that s.58(3) then requires follow only where total income, books profit plus every other head, exceeds the amount not chargeable: total income of ₹ 3,00,000 on ₹ 80,00,000 of turnover needs none, and the same business with other income, at ₹ 9,00,000, does.

The ten crore limb needs both cash tests: the ₹ 1,60,00,000 business is unaudited with ₹ 6,00,000 of cash payments out of ₹ 1,30,00,000 and audited with ₹ 20,00,000, on the same income. The calculator does not treat an empty payments box as a passed test, and it measures the receipts test on the turnover you enter where s.63 uses the aggregate of amounts received, which errs towards an audit.

What changes for tax year 2026-27 under the 2025 Act

The Income-tax Act, 2025 governs tax year 2026-27 from 1 April 2026; FY 2025-26 (AY 2026-27), being filed now, stays under the 1961 Act. The 2025 Act folds three sections into one Table in s.58: Sl. No. 1 was s.44AD, Sl. No. 2 was s.44AE and Sl. No. 3 was s.44ADA. The books requirement, s.44AA, becomes s.62, and the tax audit, s.44AB, becomes s.63. The calculator names the 1961 Act at section level only.

The relief in s.63(2) switches the audit off on all three rows, while its FY 2025-26 counterpart, s.44AB, first proviso, names s.44AD and s.44ADA and not s.44AE, so the calculator shows the goods carriage relief for that year as a reading to check. The competing deduction is Chapter VIII-C alone: the Finance Act, 2026 s.40 omitted the s.144 sub-clause from the date of original enactment. And under s.263(1), which the calculator names but does not compute, a business or profession whose accounts need no audit is now due on 31 August, not 31 July, after the Finance Act, 2026 s.66(a).

What the calculator does

For one client and one year, the calculator beside this guide runs the eligibility checks, the scheme limit with its cash test, the Table figure against books and the audit position on each route under s.58(3), s.63 and s.63(2), and dates the five year bar. It does not compute the tax: there is no slab, surcharge or cess, the maximum amount not chargeable to income-tax is your input, and the s.35(e) cap on partner pay, s.40(b) for FY 2025-26, is not computed. A second business, and checking FY 2025-26 against the 1961 Act as amended, are left to you.