What is presumptive taxation?
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Short answer
Presumptive taxation lets an eligible small business or professional declare a fixed percentage of gross receipts as taxable profit instead of actual profit.13 Professionals are taxed on 50% of gross receipts.1 The limit is ₹50 lakh, or ₹75 lakh if cash receipts are 5% or less.13 From tax year 2026-27, they sit in section 58 of the Income-tax Act, 2025.12
| Full form | Governed by | Who needs it | Where it is used | Related terms |
|---|---|---|---|---|
| Not an abbreviation: tax on deemed profit | Income-tax Act, 2025, section 58 (old sections 44AD, 44ADA and 44AE)12 | Resident individuals, HUFs and firms other than LLPs with eligible receipts | Income tax returns and advance tax for small businesses and professionals16 | Section 44ADA, section 44AD, specified profession, tax year |
Keeping full books, tracking every expense and getting an audit is costly for a one-person consultancy. Presumptive taxation offers a shortcut: accept that a fixed share of what you bill is profit, pay tax on that, and skip detailed books, without claiming actual expenses against it.1
What does presumptive taxation mean in simple words?
Presumptive taxation means paying income tax on a fixed percentage of your receipts, set by law, instead of on actual profit.1 The Income-tax Act, 2025 came into force on 1 April 2026, replacing the Income-tax Act, 1961, and uses "tax year" in place of previous year and assessment year.24
- Professionals: 50% of gross receipts is deemed income.1
- Businesses: 6% of receipts through banking or online channels, and 8% of others.13
For example, a software developer with eligible receipts is taxed on half of them under the professional scheme.1
Why does presumptive taxation matter for Indian exporters and freelancers?
Presumptive taxation matters because it can remove the need for detailed books and an audit on foreign and domestic receipts alike.1
- Income tax: foreign and domestic receipts count together towards the receipts limit.13
- Books of account: declaring at least the presumptive income avoids the books and audit requirements.1
- Advance tax: under section 408(2) of the 2025 Act, taxpayers using the presumptive schemes for businesses and professionals pay advance tax in a single instalment by 15 March.6
The trade-off is that business deductions are treated as already allowed.1
How does presumptive taxation work?
Presumptive taxation works by applying a deemed profit rate to gross receipts, within a receipts limit that is higher when cash receipts are small.13 For income earned from 1 April 2026 (tax year 2026-27), the schemes are in the Table to section 58; for income earned up to 31 March 2026 the old sections 44AD and 44ADA still apply.14
- No expense claims: once you accept the deemed profit, business deductions are treated as already allowed.1
- Cash test: cash, and cheques or drafts that are not account payee, count towards the 5% limit; bank transfers do not.1
A third scheme, old section 44AE, covers plying, hiring or leasing goods carriages.3
How do you check whether presumptive taxation applies to you?
You check by confirming your status, your type of work and your receipts against section 58.1
- Status: a resident individual, or a resident firm other than an LLP (plus HUFs for the business scheme).13
- Work: for the professional scheme, a "specified profession" under section 62(4), which lists legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, information technology, company secretary and other professions CBDT notifies.5
- Receipts: within the limit for your scheme.13
A software developer or an interior designer fits clearly. A graphic designer, translator or online tutor is not named, and should check with a chartered accountant which scheme, if any, applies.5
What is the difference between the professional and business presumptive schemes?
The professional scheme deems 50% of receipts as income for specified professions, while the business scheme deems 6% or 8% for eligible businesses.13
| Point | Professionals | Businesses |
|---|---|---|
| New law | Section 58(2), Table row 3 | Section 58, business row of the Table |
| Old law | Section 44ADA | Section 44AD |
| Who | Resident individual or firm (not LLP) in a specified profession | Resident individual, HUF or firm (not LLP) in an eligible business |
| Deemed profit | 50% of gross receipts | 6% of receipts through banking or online channels, 8% of others |
| Receipts limit | ₹50 lakh, or ₹75 lakh if cash is 5% or less | ₹2 crore, or ₹3 crore if cash is 5% or less |
| Best for | Specified professionals whose actual profit is above 50% of receipts | Eligible businesses whose actual profit is above the 6% or 8% rate |
Figures are from section 58 and the e-Filing portal's ITR-4 FAQs.13 The comparison by type of exporter is in 44AD vs 44ADA.
What do people get wrong about presumptive taxation?
People often assume presumptive taxation is always cheaper. It is simple, but it can cost more when real costs are high.1
- High costs: an IT consultant paying subcontractors 70% of their billing would pay tax on 50% under row 3, more than their actual profit.1
- Who qualifies: LLPs and companies cannot use the schemes.13
Which terms are related to presumptive taxation?
These terms explain the sections and definitions behind presumptive taxation:
- Section 44ADA: the old professional scheme, now section 58(2) row 3.1
- 44AD vs 44ADA: how the business and professional schemes compare.
- Section 44ADA's new section number: how the 1961 sections map to the 2025 Act.4
- Income-tax Act, 2025 changes: what changed for freelancers from 1 April 2026.2
- Advance tax for freelancers: the single 15 March instalment for presumptive taxpayers.6
How did we verify this?
We checked this page against the sources below on 30 October 2026. Read our methodology or report an error.
- [1]Income Tax Department: Income-tax Act, 2025, section 58 (presumptive taxation, Table rows 1 and 3)
- [2]PIB: Income-tax Act, 2025 comes into force from 1 April 2026
- [3]e-Filing portal: ITR-4 (Sugam) FAQs, sections 44AD, 44ADA and 44AE (checked 28 October 2026)
- [4]CBDT: FAQs on Interplay and Transition to the Income-tax Act, 2025
- [5]Income Tax Department: Income-tax Act, 2025, section 62 (books of account; 62(4) specified profession)
- [6]Income-tax Act, 2025 as amended by Finance Act, 2026, section 408 (Income Tax Department)
Frequently asked questions
Is presumptive taxation optional for an eligible freelancer?+
Yes. Presumptive taxation is optional: an eligible taxpayer can instead keep books and declare actual profit. Declaring less than the presumptive percentage brings in the books of account and audit requirements under section 58 if total income exceeds the basic exemption limit, so plan before choosing.1
Which presumptive taxation scheme applies to a freelance developer?+
The professional presumptive taxation scheme, row 3 of the section 58 Table (old section 44ADA), applies to a specified profession. Section 62(4) of the Income-tax Act, 2025 lists information technology among the specified professions, so a freelance developer generally falls within it.15
Do foreign-currency receipts count as cash for the presumptive taxation 5% test?+
No. For the presumptive taxation 5% cash test, receipts by bank transfer, including inward remittances from foreign clients, are not cash. Cash, and cheques or drafts that are not account payee, count towards the 5% limit, so wire receipts never push an exporter over the 5% mark.1
Can an LLP or company use presumptive taxation?+
No. The professional and business presumptive taxation schemes are for resident individuals and partnership firms other than LLPs; the business scheme also covers Hindu undivided families (HUFs). Companies and LLPs compute actual profit from books of account instead of a deemed percentage of receipts.13
Which presumptive taxation law applies to income earned before 1 April 2026?+
For income earned up to 31 March 2026, the old presumptive taxation sections 44AD and 44ADA of the Income-tax Act, 1961 still apply. For income earned from 1 April 2026, in tax year 2026-27, the schemes are in the Table to section 58 of the Income-tax Act, 2025.14
This page is general information for Indian service exporters, not tax or legal advice. Rules change and outcomes depend on your facts, so confirm with a chartered accountant before acting.
Keep reading
What is the difference between 44AD and 44ADA for Indian freelancers?
44AD vs 44ADA, now rows 1 and 3 of section 58 of the Income-tax Act, 2025: who qualifies, 6% vs 50%, limits, lock-in and which suits freelancers and agencies.
GlossaryWhat is section 44ADA?
Section 44ADA is the presumptive tax scheme for professionals: 50% of receipts taxed as profit. From tax year 2026-27 it is section 58(2), Table row 3, of the 2025 Act.
TaxCan Indian freelancers use section 44ADA (now section 58) to pay tax on 50% of their income?
How presumptive tax for professionals works for Indian freelancers paid in foreign currency: old 44ADA, new section 58, limits, 50% income, advance tax.
TaxWhat is the new section number for section 44ADA under the Income-tax Act, 2025?
Section 44ADA is now section 58(2), Table row 3 of the Income-tax Act, 2025. Old-to-new section map for freelancers, and which number to use for which year.
TaxWhat did the Income-tax Act, 2025 change for Indian freelancers?
What the Income-tax Act, 2025 changed for Indian freelancers and service exporters from 1 April 2026: tax year, new section numbers, forms, due dates, advance tax.