Presumptive taxation: Earning side income from mobile apps? Why Section 44ADA could slash your tax burden

If you are a software engineer earning additional income by developing and selling mobile applications as a side business, you may consider the presumptive taxation scheme under Section 44ADA while filing your income tax return (ITR). The scheme can simplify tax compliance and may allow eligible taxpayers to account for expenses related to their professional activities.

Regarding the presumptive taxation option, an eligible taxpayer may opt for the scheme available to specified professionals under Section 44ADA.

Under the presumptive taxation scheme of Section 44ADA, at least 50% of gross professional receipts must be declared as taxable income. However, if the actual income earned is higher than 50% of gross receipts, the taxpayer is required to declare the higher amount.

Presumptive taxation: A way to reduce compliance burden

For self-employed individuals in India, handling tax compliance and maintaining financial records can sometimes be a complicated process. Presumptive taxation offers a simpler alternative for eligible small businesses and professionals, allowing them to spend less time on detailed accounting and tax formalities.

The scheme can reduce the compliance burden and free up time and resources for professional work and broader financial planning, including decisions relating to investments such as mutual fund schemes.

What is presumptive taxation?

Presumptive taxation is a simplified tax scheme available under the Income Tax Act, 1961, for eligible businesses and professionals. Instead of maintaining extensive books of accounts and, where applicable, undergoing a tax audit, taxpayers covered by the scheme can declare income at a prescribed rate.

The presumptive taxation provisions are covered under Sections 44AD, 44ADA and 44AE of the Income Tax Act.

For example, under Section 44AD, eligible businesses can generally declare 8% of their turnover or gross receipts as income, or 6% for qualifying receipts received through digital modes. Section 44ADA, meanwhile, permits eligible professionals to declare 50% of their gross professional receipts as income. The simplified structure can make tax filing easier and reduce administrative requirements.

Income from other sources

A taxpayer may alternatively consider reporting additional income under the head “Income from Other Sources”, depending on the nature and circumstances of the income.

If the income is offered under this head, the appropriate ITR form will depend on the taxpayer’s total income and eligibility. Where the total taxable income, after applicable deductions and including the amount received from selling the software application, does not exceed ₹50 lakh, the taxpayer may be able to use the applicable simplified ITR form. Otherwise, ITR-2 may be required.

However, if income from the sale of a software application is reported under “Income from Other Sources”, expenses incurred to earn that income may not be available for deduction.

For taxpayers without business income, the stated ITR filing deadline was 31 July 2026. Filing ITR-1 or ITR-2 after the applicable deadline could attract a late fee of up to ₹5,000, subject to the relevant provisions.

On the other hand, if the income is treated as business or professional income, the applicable filing deadline is 31 August 2026, and eligible expenses incurred for earning the income may also be claimed.

Note: Tax treatment can depend on the exact nature of the activity and income. It is advisable to consult a qualified tax adviser before filing your ITR.