Published 7 May 2026
Meet Yuvraj Saluja, 39, who runs Saluja General Store, a neighbourhood kirana in Hazratganj, Lucknow. Annual turnover ₹70 lakh – well under the ₹2 crore Section 44AD ceiling. He chooses to declare income under the presumptive scheme – 6% on digital receipts, 8% on cash receipts – which means he doesn’t have to maintain books, doesn’t have to file a Trading or P&L account, and doesn’t get audited.
This is the typical small-business filer in India. ITR-4 Sugam is deliberately simpler than ITR-3: the entire Schedule BP collapses into a one-row “deemed income” entry. The price you pay for this simplicity: no expense deduction, no depreciation, no losses allowed, and a 5-year lockout if you ever opt out.
This article walks Yuvraj through the entire filing – eligibility, the digital-vs-cash split, common 44AD pitfalls, and the regime comparison.
1. Section 44AD eligibility
| Eligibility | Limit |
|---|---|
| Type of taxpayer | Individual / HUF / Firm (not LLP, not company) |
| Type of business | Any business EXCEPT plying / hiring / leasing of goods carriages (which is 44AE), agency / commission / brokerage business, or specified profession (44ADA) |
| Turnover ceiling | ₹2 crore standard; ₹3 crore if cash receipts ≤ 5% of total turnover |
| Residential status | Resident (ROR / RNOR). NRI cannot use 44AD. |
Yuvraj qualifies on all counts: individual, retail trade, ₹70L turnover (well under ₹2 cr), resident.
Sec 44AD turnover ceiling ₹2 cr / ₹3 cr digital threshold per Finance Act 2023 – effective AY 2024-25 onwards.
What if you cross ₹3 cr? 44AD becomes unavailable for that year. You file ITR-3 with full books + P&L + BS. Going back to 44AD is allowed in a later year if you fall below the threshold again, provided you haven’t triggered the Sec 44AD(4) opt-out lockout.
2. The deemed-income percentages
| Receipts type | % deemed as income |
|---|---|
| Digital / electronic receipts (UPI, cards, NEFT / RTGS / IMPS, bank transfer, AePS, e-wallets) | 6% |
| Cash receipts | 8% |
If actual margin is higher than presumptive, you can voluntarily declare the higher figure. You cannot declare lower without triggering the Sec 44AD(4) lockout (see Section 5 below).
For Yuvraj:
- ₹56,00,000 digital × 6% = ₹3,36,000
- ₹14,00,000 cash × 8% = ₹1,12,000
- Total deemed business income: ₹4,48,000
6% / 8% rates confirmed for AY 2026-27.
Why 6% vs 8% matters. Pushing receipts to digital saves 2% on tax (across the entire receipts base, not just the marginal). Many kirana / retail businesses now insist on UPI / card payments precisely to optimise this 44AD math. For Yuvraj’s mix, the cash portion costs him an extra ₹14L × 2% = ₹28,000 of deemed income versus a fully-digital business – which at his slab translates to roughly ₹3-5K of avoidable tax.
3. What’s NOT allowed under 44AD
- No detailed P&L. No Trading account, no Balance Sheet, no expense disclosure. ITR-4’s Schedule BP collapses to a single “deemed income” row.
- No depreciation deduction. Treated as already absorbed in the 6%/8% deemed margin. Note: WDV of assets continues to be tracked in the books for future relevance (Sec 32(1) deemed depreciation), but it does not flow into ITR-4.
- No business expenses. Not separately deductible.
- No business loss. 44AD by design assumes profit. You cannot declare a loss on presumptive.
- No carry-forward of pre-existing business losses. If you had business losses from earlier years (when on ITR-3), they cannot be set off in a 44AD year on ITR-4. Schedule CFL is unavailable.
- No capital gains. Forces escalation to ITR-3.
- Multiple house properties (only ONE allowed in ITR-4).
- No agricultural income > ₹5K. Forces ITR-3.
What IS allowed:
- Chapter VI-A deductions (80C, 80D, 80CCD(1B), 80TTA, etc.) – still available subject to regime choice.
- Salary income – ITR-4 supports salary alongside 44AD.
- One house property (self-occupied or let-out).
- Other Sources (savings interest, FD interest, family pension – but limited; large OS may force ITR-3).
4. What you need
Less than for ITR-3:
| Document | Why |
|---|---|
| Bank statements | Digital vs cash split; cross-check against your declared receipts. |
| GST returns (1, 3B) | If GST-registered, turnover should match. |
| 80C / 80D investment proofs | If old regime turns cheaper. |
| Form 16 | If you also have salary income. |
| PAN, Aadhaar | Standard. |
| Bank account | For refund or ECS. |
You do NOT need: books of accounts, P&L, BS, audit report, fixed asset register, depreciation schedule. That’s the whole point.
5. The Sec 44AD(4) opt-out lockout (a one-way door)
The biggest 44AD pitfall: once you opt out, you’re locked out for 5 years.
Sec 44AD(4): If a taxpayer once declares income under 44AD and later either (a) declares income lower than the presumptive % and total income exceeds basic exemption, or (b) maintains regular books and declares actual lower profit on ITR-3 – then 44AD is unavailable for the next 5 AYs.
Practical implication for Yuvraj:
- He’s choosing 44AD for AY 2026-27.
- If next year his actual margin drops to say 3% and he wants to honestly declare ₹2.1L on ₹70L turnover (instead of the deemed ₹4.48L), he must opt out → ITR-3 + audit (if income > basic exemption) → 5-AY lockout begins.
- He’d be back on ITR-4 only from AY 2032-33.
This is why “declare 44AD or not” is a multi-year decision, not a one-year tactical choice.
Sec 44AD(4) 5-year lockout window.
6. Step-by-step walkthrough
Step 1 – Sign in
Step 2 – Skip last-year import
Step 3 – Personal information
Step 4 – Questionnaire
- Income sources: tick Business / Profession.
- Sub-flag “Are you using presumptive scheme (44AD/ADA/AE)?”: Yes → 44AD.
- Other heads: leave salary / CG / HP off (none apply).
Routes to ITR-4 Sugam.
Step 5 – 44AD presumptive section
Open the Business / Profession card. ITR-4’s BP card is deliberately tiny – just one row per business:
- Business name: Saluja General Store
- Business code (NIC): 9001 (Wholesale / retail trade – food & groceries)
- Description: Retail trade of grocery, FMCG, packaged food
- Receipts via digital channels: ₹56,00,000
- Receipts via cash: ₹14,00,000
- Other receipts (e.g. cheque): ₹0
BharatTax automatically computes:
| Bucket | Receipts | Rate | Deemed income |
|---|---|---|---|
| Digital | ₹56,00,000 | 6% | ₹3,36,000 |
| Cash | ₹14,00,000 | 8% | ₹1,12,000 |
| Total | ₹70,00,000 | – | ₹4,48,000 |
Cross-check against GST. If you’re GST-registered, your annual turnover from GSTR-3B (sum of taxable + nil-rated + exempt + non-GST) must reconcile with the ₹70L declared here. AIS picks up GST data and shows variance flags. Branch transfers, exempt supplies, and composition-scheme switches are common reconciliation reasons.
Step 6 – Other Sources
- Savings bank interest: ₹8,000 (auto-eligible 80TTA up to ₹10K).
Step 7 – Chapter VI-A (old regime path)
44AD does not restrict Chapter VI-A. Yuvraj claims:
- 80C (PPF ₹1,00,000 + LIC premium ₹50,000): ₹1,50,000
- 80D (self, age 39, not senior): ₹25,000
- 80TTA (savings interest): ₹8,000
New regime under 44AD. The new regime always restricts VI-A to 80CCD(2) only (employer NPS contribution). 44AD doesn’t change that. So if you have meaningful 80C / 80D, the old regime typically wins for 44AD filers below ₹10-12L total income (where the new regime’s 87A rebate also wipes out tax). Compare both.
Step 8 – Schedule TI
| Line | New regime | Old regime |
|---|---|---|
| Income from PGBP (44AD deemed) | ₹4,48,000 | ₹4,48,000 |
| Income from Other Sources | ₹8,000 | ₹8,000 |
| Gross Total Income | ₹4,56,000 | ₹4,56,000 |
| Less: Chapter VI-A | – | ₹1,83,000 |
| Total Income (Sec 288A) | ₹4,56,000 | ₹2,73,000 |
Step 9 – Compute tax
| New regime | Old regime | |
|---|---|---|
| Tax on slab | ₹2,800 | ₹0 (TI < basic exemption ₹2.5L? no, ₹2.73L > ₹2.5L; tax on ₹23K @ 5%) |
| Tax on slab (corrected) | ₹2,800 | ₹1,150 |
| 87A rebate | ₹2,800 (TI < ₹12L → full rebate) | ₹1,150 (TI < ₹5L → full rebate) |
| Cess 4% | ₹0 | ₹0 |
| Total tax | ₹0 | ₹0 |
arithmetic against AY 2026-27 widened slabs (NEW: 0/4L = 0%; ₹4,48,000 in PGBP - basic exemption ₹4L = ₹48K @ 5% = ₹2,400 + OS ₹8K @ 5% = ₹400; total ~₹2,800 wiped by 87A). Old: TI ₹2.73L > ₹2.5L old basic exemption by ₹23K @ 5% = ₹1,150, wiped by 87A.
Both regimes produce zero tax. Yuvraj is essentially filing as compliance proof. He benefits from:
- Sec 87A rebate – both regimes (NEW: ₹60K cap up to ₹12L; OLD: ₹12.5K cap up to ₹5L). His taxable amount is below both ceilings → full rebate → ₹0 tax.
- AY 2026-27 widened NEW basic exemption (₹4 lakh, up from ₹3 lakh in AY 2025-26). His PGBP itself is ₹4.48L, mostly inside the new exemption.
Filing still serves three purposes: (a) proof of business income for visa / loan applications, (b) eligibility for income-linked schemes, © staying in Schedule CFL of any future losses if he ever exits 44AD.
Step 10 – Confirm regime, finalise return
Either regime gives ₹0 tax. Yuvraj confirms New Regime (default, simpler, fewer schedules to maintain in BharatTax UI for next year’s filing).
AY 2026-27 schema window. ITR-4 schema v1.4 for AY 2026-27 is CBDT-pending. JSON downloads show “🔒 Locked – AY 2026-27 schema pending” until release (target: May 2026). Compute / PDF / save all work now.
7. Common mistakes
[VERIFY all items below.]
- Mixing 44AD with capital gains in same year. Any CG forces ITR-3. Plan: stagger CG across years if possible, or accept the ITR-3 escalation.
- Cash receipts > 5% of turnover when claiming the ₹3 cr ceiling. The digital safe harbour requires cash ≤ 5%. If you cross 5%, the ₹2 cr ceiling applies – and if your turnover is between ₹2-3 cr, you’re suddenly ineligible for 44AD altogether.
- Declaring less than 6% / 8%. Triggers Sec 44AD(4) opt-out lockout (5 years off ITR-4) AND triggers audit obligation under Sec 44AB.
- Cross-checking turnover wrongly with GST. ITR turnover should match GSTR-3B turnover (with documented reconciling items: branch transfers, exempt supplies, etc.). AIS picks up GST data → flags variance.
- Forgetting that 44AD doesn’t allow Chapter VI-A in new regime. New regime always restricts VI-A regardless of 44AD – only 80CCD(2) (employer NPS) survives. Old regime usually better for 44AD filers with significant 80C / 80D.
- Counting GST in turnover. Turnover for 44AD is net of GST if you collect and pay GST as agent. Including GST inflates turnover and may push you above ₹2-3 cr unnecessarily.
- Treating digital + cash as one bucket. Two buckets, two rates. Don’t average.
- Multiple house properties. ITR-4 allows only one HP. Two-or-more-HP filers must escalate to ITR-3.
8. Frequently asked questions
[VERIFY all answers below.]
Q: My turnover is ₹2.5 cr but cash component is 3% only. Eligible for 44AD? A: Yes – Finance Act 2023 raised 44AD ceiling to ₹3 cr if cash receipts ≤ 5% of total turnover. You qualify.
Q: I have salary + 44AD business + one rented HP. ITR-4? A: Yes – ITR-4 supports salary + 44AD + ONE HP + limited OS. Same form. Salary goes in the salary card, HP in the HP card, presumptive business in the BP card.
Q: I declared 5% net profit (below presumptive). Audit? A: Yes – Sec 44AD(5) makes audit mandatory if you declare below the presumptive % AND total income exceeds basic exemption. Plus the 5-year lockout under 44AD(4). Triggers ITR-3.
Q: Can I declare 44AD on partnership / firm income? A: Yes – partnership firms (regular, not LLPs) are eligible for 44AD. Same 6% / 8% rates apply. Note: salary / interest paid to partners is NOT separately deductible against the firm’s 44AD income (already absorbed in the deemed margin).
Q: I bought a delivery scooter for ₹70K – can I claim depreciation? A: No – 44AD deems all expenses including depreciation as absorbed in the % cap. You cannot claim them separately. Keep the asset register internally for if you later opt out and need WDV.
Q: I have cash receipts ₹4L (out of ₹70L). Cash > 5%? A: ₹4L / ₹70L = 5.7% > 5%. So:
- The 6% / 8% rates still apply normally.
- You can’t claim the ₹3 cr digital safe harbour (you’re well below ₹2 cr anyway, so this point is moot for Yuvraj).
- The cash portion ₹4L gets 8% rate (not 6%).
Q: I run two businesses – a kirana and an online tuition. Both 44AD? A: Yes – multiple 44AD-eligible businesses can be declared separately on ITR-4. Each gets its own row in the BP card with its own digital / cash / deemed income split. Specified profession (tuition by a teacher) might fit 44ADA instead – check carefully.
Q: Can I switch from 44AD to ITR-3 voluntarily next year just to claim a depreciation deduction? A: Yes you can – but it triggers the Sec 44AD(4) 5-year lockout. Worth it only if depreciation + other expenses materially exceed the deemed margin difference for many years. Run the math.
Q: I’m a freelance graphic designer with ₹40L receipts – 44AD or 44ADA? A: Graphic design counts as a “specified profession” under Sec 44AA(1) → 44ADA applies (50% deemed margin), not 44AD. See 44ADA article.
Verification checklist
- [ ] All
...markers above resolved. - [ ] Confirm Sec 44AD ceilings + 6% / 8% rates for AY 2026-27.
- [ ] Confirm Sec 44AD(4) 5-year opt-out lockout (no change post Finance Act 2024).
- [ ] Confirm Sec 87A new-regime rebate (₹60K up to ₹12L) + old-regime rebate (₹12.5K up to ₹5L) for AY 2026-27.
- [ ] Confirm AY 2026-27 widened NEW basic exemption (₹4 lakh).
- [ ] Run fixture (
fixture.json) through BharatTax + replace approximate compute figures with exact output. - [ ] Persona uniqueness in
_PERSONAS.md(Yuvraj Saluja, AAAPS3344Y). - [ ] Confirm ITR-4 BP card field labels in latest BharatTax UI.
- [ ] Confirm digital-vs-cash split mechanics (auto-compute on both rates).