Zero Tax on Business Turnover of up to Rs.2 Crores

Budget 2025 made various changes to the direct taxation. New tax rate slab introduced, basic exemption limit increased, tax rebate limit raised under New Tax Regime. All these changes done to reduce the tax burden on taxpayers and simplify the tax compliance.

Under the new tax regime, tax slabs have been revised and a new 25% tax rate has been implemented. The revision of the tax slab assists taxpayers in lowering their tax liability through other basic deductions such as the standard deduction and tax rebate.

So what’s in for Business people? How they can pay no tax on their income? Let’s understand this.

Section 44AD of the Income Tax Act outlines the presumptive taxation scheme for businesses in India. It is one of the most important sections that allows for significant tax savings for small taxpayers such as freelancers, as they don’t have to maintain books of accounts to be furnished when filing taxes.

Presumptive taxation is a scheme that allows small taxpayers to pay tax on anticipated income rather than calculating and subtracting all expenses from their annual income. Section 44AD is a presumptive taxation scheme that permits taxpayers to pay tax on a presumed proportion of their annual turnover if it is less than or equal to Rs. 2 crores.

The tax under section 44AD of the Income Tax Act is calculated at 8% of the total gross turnover (or 6% for digital transactions) provided that the annual turnover is below or equal to Rs.2 crores.

Example: Let’ say Business Turnover is Rs.2 Crore.

So as per Section 44AD, only 6% of digital receipts to declared as profits.

In above example, Turnover is Rs.2,00,00,000 and as per presumptive taxation scheme, 6% digital receipts to be shown which is Rs.12,00,000.

As per new tax rate slab, tax would be calculated on digital receipts as:

Total Income = Rs.12,00,000

Tax would be:

Rs. 4L – 8L = Rs.4,00,000*5% = Rs.20,000

Rs. 8L – 12L = Rs.4,00,000*10% = Rs.40,000

Total Tax liability = Rs. 60,000

Rebate u/s 87A (New tax regime) = Rs. 60,000

The taxable income up to Rs. 12,00,000 under new tax regime is tax-free. Because, rebate u/s 87A tax liability is ‘nil’, which means you have to pay zero tax on the turnover of Rs. 2,00,00,000.

Other benefits of Section 44AD are like no maintenance of books of accounts and no tax audit is required. But, this is not for everyone, this scheme is not for professionals, LLP or Commission agent. And, if you opt-out of the scheme, you can’t re-enter for 5 years.

Assumption: No Other Income apart from Business Receipts.