Section 44AD is a simplified taxation scheme for small businesses that eliminates the need for maintaining detailed books of accounts. Instead of actual profit/loss, you declare 6% or 8% of turnover as income — and pay tax on that. This significantly reduces compliance burden for small traders, contractors, and service providers.
Who Can Use Section 44AD?
- Resident individuals (not HUFs or companies) engaged in any business EXCEPT specified professions
- Business turnover must NOT exceed ₹3 crore in FY 2025–26 (enhanced from ₹2Cr if 95%+ receipts are digital)
- CANNOT use if: you are a doctor, lawyer, CA, engineer, architect, consultant (these use Sec 44ADA)
- CANNOT use if: you are in agency business, commission income, or brokerage
Profit Rate Under Section 44AD
| Type of Receipt | Deemed Profit Rate | Effective Tax |
|---|---|---|
| Cash / cheque / other | 8% of gross turnover | Normal slab rate on 8% of turnover |
| Digital (NEFT/RTGS/UPI/card) | 6% of gross turnover | Normal slab rate on 6% of turnover |
The 5-Year Opt-Out Rule
If you opt out of Section 44AD (by declaring actual profit below 6/8%), you are barred from using Section 44AD for the NEXT 5 years. Additionally, you become obligated to maintain books of accounts and may need a tax audit if income exceeds the basic exemption. This is the most commonly misunderstood provision of 44AD.
Section 44ADA — For Professionals
| Section | Who | Threshold | Profit Rate |
|---|---|---|---|
| 44ADA | Specified professions: CA, doctors, lawyers, engineers, architects, consultants, interior designers, film industry | Gross receipts ≤ ₹75 lakh | 50% of gross receipts |