Presumptive taxation (44AD/44ADA/44AE): who can file the simple ITR-4 Sugam

If your books are simple and your income modest, the Income-tax Act 1961 lets you skip the ledgers altogether. The presumptive taxation scheme under sections 44AD, 44ADA and 44AE fixes your taxable profit at a flat percentage of turnover, and lets you file the one-page ITR-4 Sugam instead of the detailed ITR-3. For assessment year 2026-27, the Income Tax Department confirms on its business and profession help portal that ITR-4 is meant for a resident (not ordinarily resident) individual, HUF or firm (other than an LLP) with total income up to Rs 50 lakh whose business or professional income is computed on a presumptive basis.

The appeal is real: no audited balance sheet, no expense vouchers to defend, and profit deemed at 8%, 6% or 50% depending on your line of work. But the eligibility gates are narrow, and taxpayers routinely file ITR-4 when they should not. This guide sets out exactly who qualifies, works a full computation for the FY 2025-26 slabs, and lists the mistakes that surface most often in scrutiny.

What the Section Says

The scheme spans three separate provisions of the Income-tax Act 1961, each aimed at a different taxpayer. All three share one filing consequence: eligible income can be reported through ITR-4 Sugam, and the taxpayer is relieved of maintaining the detailed books that section 44AA otherwise demands.

Section 44AD covers most small businesses. A resident individual, HUF or partnership firm (but not an LLP) carrying on any eligible business may declare deemed income at 8% of turnover, or 6% on the portion of turnover received through account-payee cheque, bank draft, electronic clearing or other digital modes. The turnover ceiling is Rs 2 crore, raised to Rs 3 crore from assessment year 2024-25 where cash receipts do not exceed 5% of total turnover. The scheme is closed to anyone carrying on the business of plying, hiring or leasing goods carriages (that falls under 44AE), earning income by way of commission or brokerage, or running an agency business.

Section 44ADA covers professionals. A resident individual or firm (other than an LLP) engaged in a profession listed under section 44AA(1) may declare 50% of gross receipts as income. The Finance Act 2023 enhanced the receipts ceiling from Rs 50 lakh to Rs 75 lakh with effect from assessment year 2024-25, again subject to cash receipts staying within 5% of total receipts. The listed professions are legal, medical, engineering, architectural, accountancy, technical consultancy and interior decoration, plus other professions notified by the Board.

Section 44AE covers the goods transport trade. An assessee owning not more than 10 goods carriages at any time during the year may declare a fixed monthly figure per vehicle: Rs 1,000 per tonne of gross vehicle weight per month for a heavy goods vehicle exceeding 12,000 kg, and Rs 7,500 per month (or part of a month) for any other goods vehicle. Unlike 44AD and 44ADA there is no turnover ceiling here; the 10-vehicle cap is the limiting condition.

ITR-4 Sugam itself carries its own gate on top of the section you use. Per the Income Tax Department portal, you cannot file Sugam if total income exceeds Rs 50 lakh, if you are a director in a company, if you held unlisted equity shares during the year, if you have short-term capital gains or long-term capital gains under section 112A above Rs 1.25 lakh, or if you own foreign assets, earn any income from outside India, or hold signing authority in a foreign account. Cross any of these and you move to ITR-3, even if your business income is presumptive.

Worked Example

Take Dr Ananya, a resident physician in private practice, with gross professional receipts of Rs 40,00,000 for FY 2025-26, all received through bank transfer. Medicine is a listed profession under section 44AA(1), so she can use section 44ADA. Her receipts are below the Rs 75 lakh enhanced ceiling, so she qualifies.

Her deemed professional income is 50% of Rs 40,00,000, that is Rs 20,00,000. She has no other income, so her total income is Rs 20,00,000, comfortably under the Rs 50 lakh Sugam limit. The standard deduction of Rs 75,000 applies to salary income, not to presumptive professional income, so it does not enter this computation. Applying the FY 2025-26 new-regime slabs, her tax works out as below.

Because her total income of Rs 20,00,000 exceeds the Rs 12,00,000 threshold, the section 87A rebate (up to Rs 60,000 in the new regime for FY 2025-26) does not apply. Adding 4% health and education cess of Rs 8,000 gives a final liability of Rs 2,08,000, all reportable through ITR-4 Sugam with no audited accounts.

Now contrast a trader. Rakesh runs a resident proprietary retail business with a turnover of Rs 1,80,00,000 for FY 2025-26, every rupee received through UPI and cards. His turnover is within the Rs 2 crore limit, and because receipts are fully digital his deemed income under section 44AD is 6% of Rs 1,80,00,000, that is Rs 10,80,000. That figure is under the Rs 12,00,000 rebate threshold, so his base tax of Rs 48,000 (Rs 20,000 at 5% plus Rs 28,000 at 10% on the Rs 2,80,000 above Rs 8 lakh) is fully wiped out by the section 87A rebate, leaving nil tax. The same turnover taken in cash would be taxed at 8%, or Rs 14,40,000, pushing him past the rebate line. Model both regimes on the income tax calculator and compare the outcome on the old vs new regime tool before you lock in a filing.

Common Mistakes

Filing Sugam above Rs 50 lakh. A profession with Rs 90 lakh of receipts can still use section 44ADA (the ceiling is Rs 75 lakh on receipts, not income), but 50% of Rs 90 lakh is Rs 45 lakh of income, which stays under Rs 50 lakh. Push receipts higher and the deemed income crosses Rs 50 lakh, and ITR-4 is no longer permitted; the return must go on ITR-3. Check the income figure, not just turnover.

Declaring less than the presumptive rate without an audit. If you show profit below 8% (44AD) or 50% (44ADA) and your total income exceeds the basic exemption limit, you lose the concession: you must maintain books under section 44AA and get them audited under section 44AB. The whole point of the scheme is defeated, so declare at or above the deemed rate unless an audit is worth it.

Ignoring the five-year lock-in under section 44AD(4). Once you opt into 44AD, you are expected to continue for five consecutive assessment years. Opt out in any of those years and you are barred from claiming 44AD for the next five assessment years, and you must maintain books and audit if your income exceeds the exemption limit. There is no equivalent lock-in for 44ADA.

Claiming business expenses again. Under 44AD and 44ADA, the deemed income is after all expenses and depreciation. You cannot then deduct rent, salaries or depreciation separately. For firms, the deduction for partners' salary and interest was withdrawn from 44AD with effect from assessment year 2017-18, so a firm's deemed income cannot be reduced by remuneration paid to partners.

Using 44ADA for the wrong occupation. An IT consultant, tutor or trader is not carrying on a profession listed under section 44AA(1). They should use section 44AD as a business at 8% or 6%, not 44ADA at 50%. Picking the wrong section invites a notice.

Forgetting advance tax. Presumptive taxpayers under 44AD and 44ADA pay their entire advance tax in a single instalment by 15 March of the financial year, not in four instalments. Miss it and interest under section 234B and 234C follows.

NRIs and RNORs applying the scheme. All three sections require the taxpayer to be resident, and ITR-4 is barred for a not-ordinarily-resident person. Confirm your residential status before you assume presumptive taxation is open to you.

FAQ

Can I use section 44AD if my turnover is Rs 2.5 crore?

Yes, provided your cash receipts do not exceed 5% of total turnover, because the ceiling is raised to Rs 3 crore from assessment year 2024-25. If cash crosses 5%, the limit reverts to Rs 2 crore and you fall out of the scheme at Rs 2.5 crore.

Is a partnership firm eligible?

A resident partnership firm can use section 44AD or 44ADA, but a Limited Liability Partnership (LLP) cannot use either. An LLP with presumptive-style income must still compute income normally and file ITR-5.

Can I deduct my rent and salaries on top of presumptive income?

No. Under sections 44AD and 44ADA the deemed income of 8%, 6% or 50% is treated as income after every deduction under sections 30 to 38, including depreciation. Separate expense claims are not allowed.

What happens if my real profit is lower than the deemed rate?

You may declare the lower figure, but if your total income then exceeds the basic exemption limit you must keep books under section 44AA and obtain a tax audit under section 44AB. Most small taxpayers accept the deemed rate to avoid that cost.

Can a salaried person with a side business file ITR-4?

Yes, if the side business income is computed under 44AD or 44AE (or a profession under 44ADA), total income stays within Rs 50 lakh, and none of the ITR-4 exclusions apply. Salary plus presumptive business income is a common Sugam profile.

Do presumptive taxpayers really pay tax in one advance-tax instalment?

Yes. Taxpayers covered by 44AD and 44ADA pay 100% of advance tax by 15 March, unlike other taxpayers who pay across four dates. The 44AE transporter follows the ordinary four-instalment schedule.

Where do I report the turnover figure in the return?

ITR-4 Sugam asks for gross turnover or receipts and the presumptive income separately in the business and profession schedule. Use the new-regime calculator to estimate the tax on the deemed income before you file so there are no surprises at verification.