Income Tax Notice for 44AD vs 44ADA: Why Are Taxpayers Getting Notices and What Should You Do?

The Income-tax Act, 2025 came into force on 1 April 2026. Under the new Act, the presumptive-taxation provisions have been consolidated under Section 58.

However, for AY 2026–27, the Income Tax Department’s ITR guidance still uses the familiar 44AD, 44ADA and 44AE terminology.

This means you may see both old section numbers and the new-law framework while researching your return.

Presumptive taxation is a simplified method of calculating taxable income for eligible taxpayers.

Instead of calculating profit by separately claiming every ordinary business or professional expense, income is determined using the prescribed presumptive percentage of eligible turnover or gross receipts.

For small taxpayers who meet the conditions, this can make tax compliance easier. But the scheme only works when the taxpayer actually satisfies the eligibility requirements.

Section 44AD is the presumptive-taxation provision generally used for eligible businesses.

For AY 2026–27, the Income Tax Department states a ₹2 crore turnover limit in the general case, which can rise to ₹3 crore where the prescribed cash-receipt condition is satisfied.

The presumptive income is generally calculated at 8% of eligible turnover/gross receipts, with 6% applying to qualifying receipts received through specified banking or electronic modes, subject to the applicable rules.

Section 44ADA is meant for eligible taxpayers carrying on specified professions.

The Income Tax Department lists professions such as legal, medical, engineering, architectural, accountancy, technical consultancy and interior decoration, along with other notified professions.

For AY 2026–27, the normal gross-receipt limit is ₹50 lakh, which can rise to ₹75 lakh when the prescribed 5% cash-receipt condition is satisfied.

Presumptive professional income is generally 50% of gross receipts.

There is no single reason why a taxpayer may receive a communication involving presumptive taxation.

It can happen when information in the return does not appear consistent with other information available to the department, when eligibility is unclear, or when the taxpayer has made an error while selecting the section or reporting income.

1. 44ADA was selected for an activity that does not qualify as a specified profession.
2. 44AD was used for commission or agency income.
3. Turnover or professional receipts crossed the applicable limit.
4. Presumptive income was reported incorrectly.
5. TDS under Section 194J created confusion.
6. The wrong ITR form was selected.
7. AIS, Form 26AS and the ITR do not match.
8. Receipts reported in the ITR are lower than information available elsewhere.

Suppose an eligible business has turnover of ₹40 lakh.

The taxpayer’s presumptive income is determined using the applicable 44AD rate depending on the nature of the receipts.

If qualifying receipts are subject to 6%, ₹40 lakh × 6% would be ₹2.40 lakh.

This is only an illustration; the actual calculation depends on the taxpayer’s receipts and eligibility.

Suppose an eligible specified professional has gross receipts of ₹30 lakh.

Under 44ADA, the presumptive income is generally 50% of gross receipts, so ₹30 lakh × 50% = ₹15 lakh, subject to the applicable conditions.

• Log in directly to the official Income Tax e-Filing portal and check the communication or pending action.
• Read the notice carefully and note the assessment year, section, reason, amount involved and response deadline.
• Compare the notice with the ITR you filed.
• Check your turnover or gross receipts, TDS, AIS, Form 26AS and bank records.
• Confirm whether you were actually eligible for 44AD or 44ADA.
• Check whether the presumptive income was calculated using the applicable percentage.
• Prepare the supporting documents requested in the communication.
• Respond through the official portal within the applicable deadline.

Freelancers often get confused because clients may deduct TDS under Section 194J.

But 194J does not automatically mean 44ADA.

TDS is one part of the tax information trail; eligibility for presumptive professional taxation depends on the nature of the activity and the requirements of the presumptive scheme.

• Choosing 44ADA simply because you work as a freelancer.
• Assuming every consultant automatically qualifies as a specified professional.
• Using 44AD for commission or agency income without checking the exclusion.
• Ignoring the turnover/gross-receipt limits.
• Overlooking the 5% cash-receipt condition when relying on the higher threshold.
• Entering a presumptive profit figure without applying the applicable rule.
• Assuming 194J TDS automatically determines the ITR section.
• Ignoring an income-tax communication because the return has already been filed.

The 2026 transition to the Income-tax Act, 2025 can make online tax research confusing.

The new Act came into force on 1 April 2026 and consolidates the presumptive-taxation provisions under Section 58.

At the same time, AY 2026–27 filing guidance from the Income Tax Department continues to use the familiar 44AD and 44ADA terminology in relevant ITR guidance.

So, if you are reading an older article or watching an older video, check whether it is discussing the 1961 Act or the new 2025 Act before applying the information to your return.

• Identify whether the income is from an eligible business or specified profession.
• Check the applicable turnover/gross-receipt limit.
• Review the cash-receipt percentage if you are relying on the higher threshold.
• Check AIS and Form 26AS.
• Match TDS with your certificates and records.
• Select the ITR form you are actually eligible to use.
• Calculate presumptive income using the applicable rule.
• Keep invoices, bank statements and other supporting records.