Section 44AD: No Tax on Rs.2 Cr Business from 1st April 2025

Section 44AD of Income Tax Act aims to give relief to small taxpayers having business income such as taxpayers engaged in any business other than plying, hiring and leasing referred in section 44AE of the IT Act.

Eligibility

• Individual,
• HUF,
• Partnership firm other than LLP.
• All must be resident in India.

Budget 2023 Update

Turnover limit has been increased from Rs 2 crore to Rs 3 crore for Small Businesses.

Turnover limit

• 2 Crore
• 3 Crore (if 95% receipts are in Digital Transaction)

Is it true that businesses with up to ₹2 crore turnover will pay zero tax?

Yes, businesses with turnover up to ₹2 crore will pay zero tax from 1st April 2025.

The benefit is only given u/s 44AD, which allows small businesses to pay tax on presumed profits without maintaining detailed accounts.

This exemption is only applicable for businesses. Professionals like CAs, doctors, IT professionals, and artists cannot claim it as they covered u/s 44ADA.

Businesses Covered u/s 44AD

• Furniture Shops
• Retails Stores
• Medical Stores
• Garment Business
• Traders
• Wholesale Shop
• AC, TV, Fridge Sellers

Business which are not eligible –

• Professional u/s 44AA
• Commission or Brokerage
• Agency Business
• Plying, hiring or leasing goods
• Turnover 2Cr or 3Cr
• Partnership Remuneration and Interest

Who are not eligible for this tax exemption?

• Private limited companies
• LLPs
• AOPs
• Trusts
• NRIs

Certain Deductions Exclude Eligibility

Businesses claiming deductions u/s 10A, 10AA, 10B, 10BA, and Chapter VI-A (80H to 80RRB) are not eligible for the exemption.

Example

A small business has a turnover of ₹2 crore and opts for the Presumptive Taxation Scheme u/s 44AD.

How to Calculate Taxable Income?

If all transactions are done digitally, only 6% of turnover can be considered as income.

₹2 crore × 6% = ₹12 lakh (taxable income)

Using the New Tax Regime slab rates:

₹0 to ₹4 Lakh	No Tax i.e., ₹0
₹4 to ₹8 Lakh	5% i.e., ₹20,000
₹8 to ₹12 Lakh	10% i.e., ₹40,000

Total Tax is ₹60,000

Income up to ₹12 lakh is tax-free in the new tax regime as rebate of up to Rs. 60,000 is available u/s 87A.

Computation of minimum profit

• 8% of turnover
• 6% in respect of turnover received by account payee cheques, bank etc.

What to do if the income is lower then 6% or 8%?

When a declared income is below 6% or 8%, then a person must –

• Maintain the books of accounts u/s 44AA

• Get accounts audited u/s 44AB

Note : Once opt for Section 44AD of Income Tax Act, you must follow the same for next 5 years. If you fails to do so, then scheme will not be available for next 5 Years.

Points to Remember

• An assessee can voluntarily declare a higher return.

• All deductions u/s 30 to 38, including depreciation and unabsorbed depreciation are deemed to have already allowed and no further deduction is allowed under these sections.

• In case of a firm, no deduction in respect of salary and interest u/s 40(b) shall be allowed.

• The written down value is calculated where necessary, as if depriciation as applicable has been allowed.

• For firms opting for presumptive taxation under Section 44AD, specific deductions u/s 40, 40A, and 43B are not applicable, as income is presumed at 8% or 6% of turnover, and no further deductions are allowed.

• An assessee opting for this scheme should pay the advance tax related to such business through 1 installment only i.e., by 15th March of the financial year instead of 4 installments.

• Exempted from maintenance of books of account related to such business as required u/s 44AA.

• A taxpayer whose turnover does not exceeds Rs. 5 crore may declare an income less than 8% or 6% of its total sales and yet will not be required to get the accounts audited if cash receipts and payments were up to 5% of total receipts and payments.

Related Articles

Section 44AB of income tax act – Click Here

Tax Audit Report – Click Here

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