Tax Audit u/s 44AB vs Presumptive Schemes (44AD & 44ADA) for AY 2026-27

A trader with ₹2.6 crore of sales in FY 2025-26, of which ₹10 lakh came in cash, can declare ₹15.8 lakh as profit under section 44AD and skip both the books and the audit. If ₹15 lakh had come in cash instead, the same trader would be outside 44AD and would need a tax audit. The difference is the 5% cash limit, and it decides more audits than any other number.

This guide covers the limits for AY 2026-27 (income earned from 1 April 2025 to 31 March 2026): when section 44AB requires a tax audit, and when the presumptive schemes in sections 44AD and 44ADA let you avoid one.

Limits at a Glance

For these cash tests, a receipt or payment by a cheque or draft that isn't account payee counts as cash.

Section 44AD: Presumptive Income for Businesses

Who can use it

Resident individuals, Hindu Undivided Families (HUFs) and partnership firms. Limited Liability Partnerships (LLPs) and companies can't. It also isn't available for:

• income from commission, brokerage or an agency business
• the business of plying, hiring or leasing goods carriages, which has its own scheme under section 44AE
• professions covered by section 44AA(1), which use section 44ADA instead

How profit is worked out

Instead of computing actual profit, you declare at least:

• 6% of turnover received by account payee cheque, draft, bank transfer, UPI, card or another prescribed electronic mode, during the year or by the return due date
• 8% of the rest, including cash

Worked example: turnover of ₹2,60,00,000, of which ₹10,00,000 was received in cash.

Cash is 3.8% of turnover, so the ₹3 crore limit applies and the business qualifies. With ₹15,00,000 in cash (5.8%), the limit drops to ₹2 crore, the business can't use 44AD, and since turnover is above ₹1 crore with cash above 5%, section 44AB(a) requires an audit.

You may declare more than 6% or 8%. Declaring less is where the next rule comes in.

The five-year rule in section 44AD(4)

If you declare profit under 44AD for a year and then, in any of the next five years, declare profit below the 44AD rates, you can't use 44AD for the five years after that year. For example, using 44AD in AY 2024-25 and declaring a lower profit in AY 2026-27 shuts you out of 44AD from AY 2027-28 to AY 2031-32.

During those years, if your total income exceeds the basic exemption limit, you must keep books of account under section 44AA and get them audited under section 44AB(e), whatever your turnover.

Declaring a lower profit without the five-year rule

A business that hasn't used 44AD in the previous five years, has turnover within ₹1 crore, and declares actual profit below 6% doesn't need a tax audit under 44AB. It may still need to keep books of account under section 44AA, depending on its income and turnover. A lower profit leads to an audit only when section 44AD(4) applies.

Section 44ADA: Presumptive Income for Professionals

Who qualifies

Resident individuals and partnership firms (not LLPs) carrying on a profession named in section 44AA(1):

• legal, medical, engineering or architectural work
• accountancy
• technical consultancy
• interior decoration
• professions notified by CBDT: authorised representatives, film artists (actors, directors, editors, camera operators and similar roles listed in Rule 6F), company secretaries and information technology

How the 50% works

You declare at least 50% of gross receipts as profit. The other 50% is treated as covering all expenses, including depreciation.

Worked example: a software consultant receives ₹60,00,000 in FY 2025-26, all by bank transfer. Receipts are above ₹50 lakh, but cash is nil, so the ₹75 lakh limit applies. Presumed profit is ₹30,00,000. You don't compute actual expenses for the return, but keep invoices and bank statements to support the receipts you report, since TDS on professional fees under section 194J shows up in your AIS (Annual Information Statement) and Form 26AS.

Declaring less than 50%

If actual profit is below 50% and your total income exceeds the basic exemption limit, section 44AB(d) requires books of account and a tax audit, and you file ITR-3 instead of ITR-4.

Receipts between ₹50 lakh and ₹75 lakh

The professional audit limit in section 44AB(b) is still ₹50 lakh; it wasn't raised along with 44ADA's limit. If your receipts fall between ₹50 lakh and ₹75 lakh and you rely on 44ADA, confirm with your CA whether an audit is needed, since the Act is less clear here than for businesses.

When a Tax Audit Is Required

A business that declares profit under section 44AD within its ₹2 crore (or ₹3 crore) limit doesn't need an audit under 44AB(a), even if turnover is above ₹1 crore.

The audit is done by a practising Chartered Accountant, who uploads the report on the e-filing portal: Form 3CA with 3CD when the accounts are already audited under another law (a company, for example), and Form 3CB with 3CD otherwise. You add the CA under Authorised Partners on the portal, and accept the uploaded report from your own login.

Due dates for AY 2026-27

• Tax audit report: 30 September 2026
• Return for a person whose accounts are audited: 31 October 2026

CBDT has extended these dates in some years. Check the e-filing portal for any extension before relying on the dates above.

Penalty under section 271B

Not getting the accounts audited, or not furnishing the report by the due date, can attract a penalty of 0.5% of turnover or gross receipts, or ₹1,50,000, whichever is lower. Section 273B lets the Assessing Officer drop it if you show reasonable cause.

Which Route Applies

ITR-4 (Sugam) is for resident individuals, HUFs and firms using 44AD or 44ADA whose total income is up to ₹50 lakh. Above that, or with audited accounts, use ITR-3 (individuals and HUFs) or ITR-5 (firms).

Before You File

1. Work out cash receipts (and, for the ₹10 crore audit limit, cash payments) as a percentage early in the year. Once cash crosses 5%, the higher limits are gone for that year.
2. Before declaring a profit below 6%/8%, check whether you used 44AD in any of the last five years.
3. Compare the turnover or receipts you report with your AIS, which shows TDS deducted by your clients and other information reported about you.
4. The Income-tax Act, 2025 replaces the 1961 Act from 1 April 2026 and renumbers these sections for income earned after that date. AY 2026-27 is still governed by the sections quoted here.