Section 44AD Presumptive Taxation for Pvt Ltd: Eligibility, 6% Digital / 8% Cash Rates

Section 44AD ITA 1961 is not available to a private limited company. The "eligible assessee" is an individual, HUF or partnership firm (not LLP) carrying on a business with turnover up to ₹2 crore, who may declare 6% of digital/through-banking turnover or 8% of cash turnover as profit — with no books and no audit. A pvt ltd must instead compute actual profit, maintain books, and is governed by the ₹1 crore / ₹10 crore tax-audit thresholds of s.44AB.

What the law actually requires

The eligible assessee (s.44AD(1)). Presumptive taxation is open to:

The business must be other than plying/leasing goods carriages (covered by s.44AE), and the assessee must not have claimed certain specified deductions. Turnover must not exceed ₹2 crore in the year.

The presumptive rates. An opting assessee declares income at:

Higher profits can always be declared; the scheme is a floor, not a cap. The assessee is then exempt from maintaining books (s.44AA) and from tax audit (s.44AB) in that year, and — for eligible assessees — from advance tax (s.44AD(6)).

Why a pvt ltd cannot opt in. The definition in s.44AD(1) limits the scheme to the listed non-corporate assessees. A company's income is computed under the normal provisions: it must maintain books (s.44AA applies to companies by the very nature of the Companies Act), compute actual profit, pay advance tax (s.208 — companies get no threshold relief), and face a tax audit when turnover crosses the s.44AB thresholds.

The pvt ltd audit position (from the s.44AB article):

Worked example: the same ₹1.5 crore turnover, two structures

As a partnership firm (eligible): Rahul & Sons, a firm with turnover of ₹1.5 crore in FY 2025-26, all receipts through NEFT/UPI. It opts into s.44AD and declares profit at 6% = ₹9,00,000. It files ITR-5 on that deemed income, maintains no detailed books, and is exempt from tax audit and (for eligible assessees) advance tax. Its tax at slab rates on ₹9 lakh — well below the corporate burden on the same profit.

As a pvt ltd (not eligible): Rahul Fabricators Pvt Ltd, the same ₹1.5 crore turnover, all digital. It cannot opt into s.44AD. It must:

• Maintain books under the Companies Act and s.44AA.
• Compute actual profit — which, at a thin 4% margin, is ₹6,00,000, on which it pays corporate tax at the s.115BAA rate (25.17% for companies that have opted in) — about ₹1,51,000 — plus advance tax in four instalments.
• Face no tax audit because turnover of ₹1.5 crore is below ₹1 crore? No — ₹1.5 crore is above ₹1 crore, but since all receipts are digital (both cash ratios 0% ≤ 5%), the ₹10 crore threshold applies, so no tax audit is required.

The point is not that the company pays more — it may legitimately prefer incorporation for liability and credibility. The point is that 44AD is not on the menu: the company's compliance is books + actual profit + corporate tax + advance tax, and its only relief is the audit threshold.

Practical implications

• Do not let a CA "opt" your company into 44AD. A pvt ltd declaring "6% of turnover" as profit has no statutory basis; the AO will reject the presumptive computation and assess actual profit with interest and penalty exposure.
• The 6%/8% rates are a floor, not a shortcut to lower tax. For a company, the correct planning lever is the audit threshold (digitise to keep cash ratios ≤ 5%) and the s.115BAA concessional corporate rate — not presumptive income.
• Firm-to-company conversion decisions. Founders sometimes compare a firm's 44AD simplicity against a company's 25.17% flat rate. For a genuinely profitable business, the flat corporate rate plus audit-threshold relief is often competitive; for a thin-margin business, the firm's presumptive route looks better on paper — run the numbers on actual margins before incorporating.
• Advance tax still bites companies. A company's tax must be paid in the four s.211 instalments; there is no presumptive exemption from advance tax for companies.
• The 5-year trap applies to the firm, not the company. If Rahul & Sons opts out of 44AD after five years, it is locked out for five years and must get audited. A company never enters this scheme, so it never triggers the trap.

Changed FY 2025-26: No amendment changed s.44AD eligibility or rates this year — the 6%/8% split and ₹2 crore limit remain. The operative change is awareness: with the corporate concessional rate (s.115BAA, 25.17%) widely adopted, the "incorporate and pay 6% presumptive" confusion is what scrutiny catches most often.

Step-by-step: what to do

• Check entity type. If you run a company, stop here — s.44AD does not apply.
• If you run an eligible firm/individual/HUF business, confirm turnover ≤ ₹2 crore and that s.44AE/other exclusions don't apply.
• Decide the rate: 6% on turnover received digitally/through banking, 8% on cash receipts; declare the higher of presumptive or actual profit.
• File ITR-5/ITR-4 on the deemed income; keep a turnover reconciliation.
• For a company, maintain books, compute actual profit, and use the presumptive tax tree to confirm which presumptive provisions (if any) apply to your entity — then plan the tax-audit threshold via digital receipts/payments.

FAQ

Can a private limited company use Section 44AD?
No. The eligible assessee is an individual, HUF or partnership firm. A company must compute actual profit, maintain books, and follow the s.44AB audit thresholds.

What are the 44AD presumptive rates?
6% of turnover received through banking channels/digital modes and 8% of cash turnover. The assessee may declare a higher profit; the rates are a floor.

What is the turnover limit for 44AD?
₹2 crore in the financial year. Above that, the scheme is unavailable even to eligible assessees.

Does 44AD exempt a company from tax audit?
The exemption from audit applies only to eligible assessees who opt in. A company is never exempt from the tax audit via 44AD; its relief comes only from the s.44AB thresholds (₹1 crore / ₹10 crore digital).

Can an LLP use 44AD?
No — LLPs are not among the eligible assessees. This is a common source of confusion given that LLPs are tax-transparent for other purposes.

Sources

• Income Tax Act 1961, s.44AD (eligible assessee, ₹2 crore limit, 6%/8% rates), s.44AB (audit thresholds), s.44AE (carriage), s.208/211 (advance tax), s.115BAA (concessional corporate rate)
• Finance Act 2016 — 6%/8% presumptive rate split, ₹2 crore limit
• Income Tax Rules 1962 — Form 3CA/3CB, Form 3CD

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