Section 44AD vs 44ADA: Key Differences for Small Businesses & Professionals
- Rashmita Choudhary
- Nov 6
- 9 min read
Sections 44AD and 44ADA under the Income Tax Act, 1961, simplify tax filing for small businesses and professionals by allowing them to declare income on a presumptive basis rather than maintaining detailed books of accounts. These provisions encourage voluntary compliance and ease the financial reporting burden, especially for those with moderate annual receipts.
Table of Contents
Section 44AD: Simplified Tax Scheme for Small Businesses
Section 44AD of the Income Tax Act is designed to simplify the tax filing process for small businesses by allowing them to declare income on a presumptive basis instead of maintaining complex accounting records. It is applicable to resident individuals, Hindu Undivided Families (HUFs), and partnership firms (excluding LLPs) engaged in eligible businesses such as trading, manufacturing, and contracting.
The turnover limit for availing of this scheme is up to ₹2 crore, which has been recently extended to ₹3 crore if at least 95% of the business receipts are through digital modes like bank transfers, UPI, or card payments. Under this scheme, the taxpayer can declare 8% of total turnover as income (or 6% in case of digital receipts). No further deduction for expenses is allowed, as the income is assumed after covering business costs.
One of the key advantages is the exemption from maintaining detailed books of accounts and getting them audited, provided income is declared as per presumptive rates. However, if the taxpayer reports income lower than the presumptive rate and total income exceeds the basic exemption limit, a tax audit under Section 44AB becomes mandatory. The entire advance tax liability under this section must be paid by March 15 of the financial year.
Section 44ADA: Presumptive Taxation for Professionals
Section 44ADA is a counterpart of Section 44AD, designed exclusively for specified professionals such as doctors, lawyers, architects, engineers, accountants, and consultants. It provides a simplified method to declare income without maintaining extensive records or undergoing audits, provided conditions are met.
Professionals eligible under this section can avail of the presumptive taxation benefit if their gross receipts do not exceed ₹50 lakh in a financial year. Following the recent amendments, the limit has been extended to ₹75 lakh if 95% of the receipts are received digitally. Under this scheme, 50% of total gross receipts are treated as taxable income, with the remaining 50% presumed to cover professional expenses.
Those opting for this section are not required to maintain detailed books of accounts or get them audited if the declared income is 50% or more of their total receipts. However, if the declared income is below 50% and exceeds the basic exemption limit, a tax audit becomes compulsory. This approach offers a major compliance relief to independent professionals, consultants, and freelancers.
Key Differences Between Section 44AD and 44ADA
While both sections aim to simplify taxation, their applicability and income computation methods differ significantly.
Particulars | Section 44AD | Section 44ADA |
Applicability | Small businesses such as traders, manufacturers, and contractors | Specified professionals like doctors, lawyers, and consultants |
Turnover / Receipt Limit | ₹2 crore (₹3 crore if 95% receipts are digital) | ₹50 lakh (₹75 lakh if 95% receipts are digital) |
Presumptive Income Rate | 8% (6% for digital transactions) | 50% of gross receipts |
Eligible Entities | Individuals, HUFs, and partnership firms (excluding LLPs) | Only resident individuals and partnership firms (excluding LLPs) |
Books of Accounts | Not required if income declared as per section | Not required if income declared as per section |
Tax Audit Requirement | Mandatory if income below 6%/8% or turnover exceeds prescribed limit | Mandatory if income declared below 50% and exceeds exemption limit |
ITR Form to be Filed | ITR-4 (Sugam) | ITR-4 or ITR-3 (if claiming lower income) |
These distinctions help taxpayers determine the correct section to apply, depending on their nature of business or profession.
Practical Examples of 44AD vs 44ADA
Example 1: Trader under Section 44AD A local shop owner with annual sales of ₹1.5 crore, out of which 98% are digital, can declare income as 6% of turnover, i.e., ₹9 lakh. This income is taxed as business income without the need to maintain books or undergo audit.
Example 2: Consultant under Section 44ADA A freelance consultant earning ₹60 lakh in a financial year with all payments received online can declare 50% of gross receipts, i.e., ₹30 lakh, as taxable income. The remaining ₹30 lakh is presumed to cover professional expenses, and no audit is required.
These examples show how both sections offer a straightforward tax approach while rewarding digital transactions and compliance.
Benefits of Presumptive Taxation Schemes
Presumptive taxation under Sections 44AD and 44ADA simplifies compliance and promotes ease of doing business. The major benefits include:
No requirement to maintain detailed books of accounts.
No audit obligation unless income falls below presumptive limits.
Reduced compliance costs and paperwork.
Lower administrative burden for small taxpayers and professionals.
Encouragement for digital transactions through preferential tax treatment.
Predictable and transparent tax liability, minimizing disputes and scrutiny.
This approach encourages voluntary compliance while saving time and effort, particularly for those with limited accounting knowledge.
How to Choose Between Section 44AD and Section 44ADA
Choosing between the two sections depends primarily on the nature of income and type of taxpayer. Businesses engaged in trading, contracting, or manufacturing should opt for Section 44AD, provided they meet the turnover limit and are not involved in specified professions. On the other hand, professionals offering consultancy or specialized services listed under Rule 6F should use Section 44ADA.
It is also essential to consider factors like receipt mode (cash vs digital), expected profit margin, and long-term compliance preferences. While 44AD offers lower presumptive rates (6%–8%), it applies only to business income, whereas 44ADA applies to service-based professional earnings. Consulting experts or using reliable platforms like TaxBuddy can help taxpayers choose the most suitable scheme based on their income pattern and future plans.
Compliance, Filing, and Audit Requirements
Both sections eliminate the need to maintain regular books of accounts under Section 44AA if the presumptive income is declared as per law. The audit requirement arises only when the declared income is below the presumptive rate or total receipts exceed prescribed limits.
Taxpayers under 44AD and 44ADA must file their returns using ITR-4 (Sugam) on or before the due date—typically July 31 for non-audit cases. If claiming lower income and opting for audit, ITR-3 should be used. Advance tax under both sections must be paid by March 15 of the financial year in a single installment.
Platforms like TaxBuddy streamline this process by automatically applying the correct presumptive rate, ensuring accurate computation and timely filing while minimizing human error.
TaxBuddy for Seamless Presumptive Tax Filing
TaxBuddy simplifies the complexities of presumptive taxation for both small business owners and professionals. The platform automatically identifies whether the taxpayer qualifies under Section 44AD or 44ADA, calculates presumptive income accurately, and recommends the best filing strategy.
It also provides real-time regime comparison, eligibility checks for digital transaction benefits, and post-filing support for notices. Whether a taxpayer prefers self-filing or expert assistance, TaxBuddy ensures a seamless experience through its AI-driven tools and professional guidance.
Conclusion
Sections 44AD and 44ADA are crucial for small businesses and professionals seeking simplified tax compliance. They not only reduce the administrative load but also promote digital transactions and financial transparency. Choosing the right section can help optimize tax outcomes and prevent unnecessary audits. For anyone looking for assistance in tax filing, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options?
TaxBuddy offers flexibility to suit every taxpayer’s comfort level. It provides both self-filing and expert-assisted plans. In the self-filing plan, users can file their income tax returns independently using TaxBuddy’s AI-driven platform that guides them through each step, checks for errors, and ensures compliance with the latest tax rules. The expert-assisted plan, on the other hand, involves professional tax experts who review, prepare, and file the return on behalf of the taxpayer. This option is ideal for those with complex incomes such as business profits, capital gains, or multiple sources of income.
Q2. Which is the best site to file ITR?
The government’s official portal, incometax.gov.in, is the primary site for e-filing income tax returns. However, many taxpayers prefer user-friendly and feature-rich private platforms like TaxBuddy. These platforms simplify the filing experience with guided forms, automatic data validation, and error-free calculations. TaxBuddy, in particular, combines AI technology with expert assistance, ensuring accurate computation, claim optimization, and timely filing without the need to navigate technical details manually.
Q3. Where to file an income tax return?
Income tax returns can be filed online through two main options — the official Income Tax Department e-filing portal (incometax.gov.in) or trusted private platforms like TaxBuddy. While the government portal is suitable for experienced filers, TaxBuddy provides a much smoother experience for individuals, freelancers, and small businesses by automating most of the manual processes. The platform also helps users choose the right ITR form, claim deductions, and compare between old and new tax regimes effortlessly.
Q4. Who is eligible to file under Section 44AD?
Section 44AD applies to resident individuals, Hindu Undivided Families (HUFs), and partnership firms (excluding LLPs) engaged in eligible businesses such as trading, manufacturing, or contracting. The total turnover or gross receipts of the business should not exceed ₹2 crore in a financial year, or ₹3 crore if at least 95% of the receipts are received digitally. Under this scheme, taxpayers can declare 8% of turnover (or 6% in case of digital receipts) as their taxable income without maintaining detailed books of accounts or getting their accounts audited.
Q5. Can professionals file under Section 44AD?
No. Professionals such as doctors, lawyers, architects, accountants, consultants, and engineers are not eligible to file under Section 44AD. Their income falls under the scope of Section 44ADA, which is specifically designed for professionals notified under Rule 6F of the Income Tax Rules. Section 44ADA allows them to declare 50% of their gross receipts as taxable income, offering a simpler compliance process suited to the nature of professional earnings rather than business turnover.
Q6. What is the turnover limit under Section 44ADA after Budget 2025 updates?
As per the updates announced in Budget 2025, the presumptive taxation limit under Section 44ADA has been increased to ₹75 lakh, provided at least 95% of the total professional receipts are received through digital means such as bank transfers, UPI, or online payments. For those with cash receipts exceeding 5% of total income, the limit remains ₹50 lakh. This revision aims to encourage professionals to adopt digital transactions while enjoying a higher eligibility threshold for presumptive filing.
Q7. What happens if income declared is lower than presumptive limits under 44AD or 44ADA?
If a taxpayer declares income lower than the prescribed presumptive rate (6%/8% under 44AD or 50% under 44ADA) and the total income exceeds the basic exemption limit, they are required to maintain regular books of accounts under Section 44AA and get them audited under Section 44AB. This ensures that lower income claims are properly substantiated with records. Non-compliance with these requirements may attract penalties and increased scrutiny from the Income Tax Department.
Q8. Can a taxpayer opt out of presumptive taxation after choosing it once?
Yes, a taxpayer can opt out of the presumptive taxation scheme. However, under Section 44AD(4), once a taxpayer opts out after having availed the scheme, they are not eligible to re-enter it for the next five assessment years. This restriction is intended to prevent misuse of the scheme by alternating between presumptive and regular filing methods. Therefore, before opting in, taxpayers should evaluate their long-term business income patterns and consult experts if needed.
Q9. Which ITR form should be used for presumptive taxation filing?
Taxpayers filing under presumptive taxation (either Section 44AD or 44ADA) must use ITR-4, also known as the Sugam form. This form is specifically designed for small taxpayers and professionals declaring income on a presumptive basis. However, if the taxpayer’s income is lower than the presumptive rate and they are maintaining books of accounts, they must file ITR-3 instead. Using the correct form ensures smooth processing and minimizes the risk of return rejection or notice issuance.
Q10. Are advance tax payments required under Section 44AD and 44ADA?
Yes. Even under the presumptive taxation schemes, taxpayers are required to pay advance tax if their estimated tax liability for the financial year exceeds ₹10,000. However, unlike other taxpayers who pay advance tax in four installments, those opting for Section 44AD or 44ADA need to pay the entire amount by March 15 of the financial year. Failure to do so may attract interest under Sections 234B and 234C of the Income Tax Act.
Q11. Can digital receipts reduce the taxable percentage under presumptive taxation?
Yes, digital transactions can reduce the presumptive income rate under Section 44AD. If at least 95% of the total business receipts are received digitally, the presumptive rate reduces from 8% to 6% of turnover. This provides a direct incentive for small businesses to shift towards digital payments. However, under Section 44ADA, the presumptive income rate remains fixed at 50% regardless of the payment mode. The benefit of higher turnover limits for digital receipts still applies to professionals under 44ADA.
Q12. How does TaxBuddy assist in presumptive taxation filing?
TaxBuddy simplifies filing under presumptive taxation by automating every step of the process. It identifies eligibility under Section 44AD or 44ADA based on income type, calculates presumptive income, and ensures compliance with advance tax, audit, and reporting norms. The AI-driven interface also compares tax liability under old and new regimes, flags potential errors, and ensures that deductions and digital receipt benefits are correctly applied. Users can choose self-filing for convenience or expert-assisted filing for accuracy and personalized support, ensuring a seamless and stress-free filing experience.
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