Running a business in India comes with the responsibility of filing income tax every year. To simplify compliance for small businesses, the Income Tax Act provides a Presumptive Taxation Scheme (PTS) under Section 44AD. This section allows eligible taxpayers to declare income at a prescribed percentage of turnover instead of maintaining detailed books of accounts.
If you are a small businessman or professional reporting income under “Profits and Gains from Business or Profession (PGBP),” understanding Section 44AD can help you save time, reduce compliance burden, and even maximize your tax savings in 2025.
What is Section 44AD?
Section 44AD is a presumptive taxation scheme designed to simplify taxation for small businesses. Instead of maintaining detailed records, businesses can declare their income as a fixed percentage of their total turnover.
- 8% of total turnover (if received in cash)
- 6% of total turnover (if received digitally)
This means that if your total sales are ₹50,00,000 and all receipts are through digital mode, your taxable income under Section 44AD will be:
50,00,000 × 6% = ₹3,00,000 (Taxable Income)
Eligibility Criteria for Section 44AD
Not everyone can use Section 44AD. The scheme is available only to:
✅ Eligible Assessees
- Resident Individuals
- Hindu Undivided Families (HUFs)
- Partnership firms (excluding LLPs)
❌ Not Eligible
- Companies and LLPs
- Professionals under Section 44ADA (like doctors, lawyers, CA, architects)
- Non-residents
✅ Eligible Businesses
- Any business (except plying, hiring or leasing goods carriages covered under Section 44AE)
- Businesses with turnover up to ₹2 Crores
Benefits of Filing Income Under Section 44AD
- No Need to Maintain Detailed Books of Accounts
- Simplifies compliance for small businesses.
- Lower Tax Audit Requirement
- No mandatory audit if you declare income as per Section 44AD.
- Lower Advance Tax Burden
- Only 100% advance tax to be paid by 15th March.
- Encourages Digital Transactions
- Lower presumptive rate (6%) if income is received digitally.
How Businessmen Can Maximize Tax Savings Under Section 44AD
Here are some strategies to save maximum tax while filing under Section 44AD:
1. Opt for Digital Payments
Since digital receipts are taxed at 6% instead of 8%, encouraging customers to pay through UPI, bank transfers, or cards can directly reduce your tax liability.
2. Claim Deductions Under Chapter VI-A
Even though your taxable income is computed at 6%/8% of turnover, you can still claim:
- Section 80C (PF, LIC, ELSS, PPF, NSC, Tuition Fees, etc.)
- Section 80D (Health Insurance Premiums)
- Section 80G (Donations)
This helps in reducing your overall taxable income further.
3. Invest in Tax-Free Instruments
Use your savings to invest in:
- PPF (Public Provident Fund)
- NPS (National Pension Scheme – extra deduction under 80CCD(1B))
- Tax-saving FDs
4. Switch Between Presumptive & Normal Scheme Strategically
If your business expenses are very high, opting out of Section 44AD and filing normal ITR with actual expenses may sometimes reduce tax liability.
Example: Tax Saving Comparison
| Particulars | Case 1: Normal ITR | Case 2: Section 44AD |
|---|---|---|
| Turnover | ₹50,00,000 | ₹50,00,000 |
| Net Profit (actual) | ₹6,00,000 | Not considered |
| Presumptive Income | N/A | ₹3,00,000 (6%) |
| Taxable Income | ₹6,00,000 | ₹3,00,000 |
| Tax Payable (before deductions) | ₹32,500 | NIL (below basic exemption) |
👉 Clearly, Section 44AD reduces tax liability significantly if your actual expenses are low.
Filing ITR Under Section 44AD in 2025
- Use ITR-4 (Sugam Form)
- Declare income at 6%/8% of turnover
- No need for detailed P&L and Balance Sheet
- Pay advance tax before 15th March
For official instructions, visit:
👉 Income Tax India – Presumptive Taxation
FAQs on Section 44AD
Q1. Can professionals use Section 44AD?
No, professionals like doctors, CA, engineers must use Section 44ADA, not 44AD.
Q2. What if my turnover exceeds ₹2 crores?
You cannot use Section 44AD. Tax audit and normal ITR filing will be mandatory.
Q3. Do I need to maintain books of accounts under 44AD?
No, detailed books are not required.
Q4. Can I switch out of Section 44AD anytime?
If you opt out, you cannot re-enter for next 5 years. Plan carefully.
Conclusion
For small businessmen in India, Section 44AD is a tax-saving boon. It reduces compliance burden, promotes digital transactions, and often lowers taxable income compared to regular filing. However, careful planning is needed while choosing between presumptive and normal taxation.
By combining digital receipts, deductions under Chapter VI-A, and tax-saving investments, you can maximize your tax savings under Section 44AD in 2025 while ensuring hassle-free compliance.
📌 Useful Resources:
