Section 44AD

Full form: Presumptive Taxation for Business

Tax & Deductions

Section 44AD is a simplified taxation scheme for small businesses with turnover up to Rs 3 crore (Rs 2 Cr for cash-based businesses). Business income is presumed at 8% of turnover (6% for digital payments), eliminating the need for detailed books of accounts.

In detail

Who can use 44AD: individuals, HUFs, and partnership firms with business turnover up to Rs 3 Cr. Cannot be used by: professionals (Section 44ADA applies for them), LLPs, companies.nnBenefit: simplified compliance. Declare 8% (or 6% if 95%+ income via digital) of turnover as profit. No need to maintain detailed books. No tax audit requirement (as long as paying tax on presumptive income).nnTrap: if opted out of 44AD, cannot re-enter for 5 years. And if actual profit is less than 8%, still must show 8% or go for tax audit.

Formula

Presumptive profit = Turnover x 8% (cash) or 6% (digital)nTax = Presumptive profit x applicable slab rate

Real-life example

🇮🇳 India example

Mehul runs a small electronics shop with Rs 80L annual turnover. Under 44AD, presumptive profit = Rs 80L x 8% = Rs 6.4L. He declares Rs 6.4L income, pays tax at slab. No need to maintain inventory records, P&L statements, or get books audited. Saves significant compliance cost.