Small Business Tax in India

India's Central Board of Direct Taxes (CBDT) administers the Income Tax Act 1961, which provides multiple simplified pathways for small businesses and self-employed professionals. The two most widely used are the presumptive taxation schemes under Sections 44AD and 44ADA, which allow eligible taxpayers to declare a fixed percentage of receipts as income without maintaining detailed books of accounts. For context on self-employment taxation for independent professionals, see the India country overview.

How does the Section 44AD presumptive scheme work for small businesses?

Section 44AD applies to resident individuals, Hindu Undivided Families (HUFs), and partnership firms (excluding Limited Liability Partnerships) engaged in any eligible business. For FY 2025-26 (Assessment Year 2026-27), a business whose aggregate annual turnover does not exceed INR 3 crore may opt into the scheme, provided that cash receipts do not exceed 5% of total turnover -- the "95% digital" condition. Where that condition is met, the taxpayer declares 6% of turnover as taxable income on digital and banking-channel receipts. Where cash exceeds 5%, the standard deemed-profit rate is 8% of turnover, and the turnover ceiling drops to INR 2 crore. Once elected, a business that opts out of the scheme for any one Assessment Year cannot re-enter for the following five years (Section 44AD(4) lock-in). Advance tax: 100% must be paid in a single instalment by 15 March of the financial year. Eligible businesses file ITR-4 (Sugam); the deadline for non-audit cases for AY 2026-27 is 31 August 2026 per Finance Act 2025 changes. Budget 2025 did not alter the INR 3 crore ceiling or the 6%/8% rates -- both remain in force for FY 2025-26. Income Tax Department, incometax.gov.in

How does the Section 44ADA presumptive scheme work for professionals?

Section 44ADA mirrors Section 44AD but targets specified professions: legal (advocates, solicitors), medical (doctors, surgeons, dentists), engineering, architecture, accountancy (Chartered Accountants, Cost Accountants), technical consultancy, interior decoration, film production, company secretaries, and information technology professionals notified by the CBDT. The scheme applies to resident individuals and partnership firms (excluding LLPs). For FY 2025-26, gross receipts must not exceed INR 75 lakh, provided that no more than 5% of receipts are in cash -- the same 95% digital condition. Where that condition is met, the professional declares 50% of gross receipts as taxable income. Where cash exceeds 5%, the INR 50 lakh ceiling reverts. No books of accounts are required, and no audit is needed at these thresholds. Unlike Section 44AD, there is no multi-year lock-in under 44ADA -- a professional may opt in or out each Assessment Year independently. Advance tax: 100% in a single instalment by 15 March. Filing: ITR-4 (Sugam) for non-audit professionals; ITR-3 for those outside the income limits or with complex income. ClearTax, Section 44ADA

What income-tax rates apply to domestic companies?

Indian domestic companies pay corporate income tax under the Income Tax Act 1961. Three principal rate regimes exist for FY 2025-26. First, the standard rate of 30% applies to companies with turnover exceeding INR 400 crore in FY 2020-21, producing effective rates of approximately 31.20%-34.94% once surcharge (7%-12% on higher incomes) and Health and Education Cess (4%) are added. Second, Section 115BAA provides an optional flat rate of 22% (effective approximately 25.17% including a flat 10% surcharge and 4% cess) for existing domestic companies that irrevocably forfeit most exemptions and deductions -- the election, once made, cannot be reversed. Third, the reduced turnover rate of 25% applies where turnover did not exceed INR 400 crore in the reference financial year. Separately, Section 115BAB provides a 15% rate (effective approximately 17.16% with flat 10% surcharge and 4% cess) for new manufacturing companies incorporated after 1 October 2019 that commenced production on or before 31 March 2024. Under both 115BAA and 115BAB, companies are exempt from the Minimum Alternate Tax (MAT). PwC, India Corporate Taxes on Corporate Income; Income Tax Department

What individual income-tax slabs apply to sole proprietors and presumptive-scheme filers?

Sole proprietors and individuals filing under the presumptive schemes (44AD, 44ADA) are taxed as individuals under the personal income tax framework. For FY 2025-26 (AY 2026-27), the new tax regime under Section 115BAC is the default. Budget 2025 raised the Section 87A rebate to INR 60,000, effectively making income up to INR 12 lakh tax-free for eligible individuals (INR 12.75 lakh for salaried persons including the INR 75,000 standard deduction). The new-regime slab rates are: Nil on income up to INR 4 lakh; 5% on INR 4-8 lakh; 10% on INR 8-12 lakh; 15% on INR 12-16 lakh; 20% on INR 16-20 lakh; 25% on INR 20-24 lakh; and 30% above INR 24 lakh. Health and Education Cess of 4% applies on top of income tax and surcharge. The old tax regime remains available as an opt-in alternative for those who wish to claim deductions such as Section 80C (investments), 80D (health insurance), and home loan interest -- but it is no longer the default. Income Tax Department, new-regime slabs; Press Information Bureau, Budget 2025

What are the GST registration thresholds and MSME benefits?

Goods and Services Tax (GST) registration is mandatory for businesses whose aggregate turnover in a financial year exceeds INR 40 lakh for suppliers of goods (INR 20 lakh in special-category northeastern states) or INR 20 lakh for service providers (INR 10 lakh in specified special-category states). These thresholds have remained unchanged for FY 2025-26. Businesses with turnover up to INR 1.5 crore may opt for the GST Composition Scheme (Section 10, CGST Act), paying a simplified flat rate of 1% on goods or 6% on services rather than standard GST rates -- in exchange for simpler quarterly filing and no input-tax credit recovery. Budget 2025 revised the MSME classification thresholds: Micro enterprises now qualify with investment up to INR 2.5 crore and turnover up to INR 10 crore; Medium enterprises may have investment up to INR 125 crore and turnover up to INR 500 crore. The MSME classification (via Udyam Registration, which is self-declared and paperless) unlocks priority-sector lending, government procurement preferences, and critically, a buyer-side tax rule: Section 43B(h) of the Income Tax Act, effective from AY 2024-25 and carrying forward into FY 2025-26, disallows a buyer's deduction for amounts payable to a registered Micro or Small Enterprise unless the payment is made within 45 days of the agreement date (15 days if no written agreement). Amounts paid late are deductible only in the year of actual payment, creating a cashflow incentive for prompt MSME payment. ClearTax, Section 43B(h); ClearTax, GST Registration Limits

The tax landscape for Indian small businesses is layered and evolving. A qualified chartered accountant can help determine whether the presumptive scheme, a standard-accounts basis, or a corporate structure produces the best outcome for a specific business. Consult a qualified chartered accountant or tax professional registered with the Institute of Chartered Accountants of India (ICAI) for guidance specific to your circumstances.