Small Business Tax India — Section 44AD Guide FY 2025-26

Tax guide for small businesses and traders in India. Section 44AD presumptive scheme, GST threshold, ITR-4 filing, deductions, and advance tax.

Updated: March 2025

Who this covers

Small traders, retailers, wholesalers, transporters, and any business person (not a professional) earning business income. If you run a shop, trade goods, provide labour, or run any non-professional business, this is your guide.

Section 44AD — presumptive scheme for small businesses

DetailValue
Turnover limit₹3 crore (if cash receipts ≤ 5% of turnover)
Taxable income8% of turnover (6% if receipts via banking/digital)
ITR formITR-4
Books of accountsNot required under 44AD
Tax auditNot required under 44AD
Advance taxOne instalment by March 15
The 6% rate applies if your customers pay by cheque, UPI, or bank transfer (not cash). If all receipts are digital, you pay tax on 6% of turnover. Example: ₹1 crore turnover, all digital → taxable income = ₹6 lakh.

GST registration

As a small business, GST registration is mandatory when:

  • Annual turnover exceeds ₹40 lakh (goods) or ₹20 lakh (services)
  • You sell goods in more than one state
  • You sell on e-commerce platforms (mandatory from ₹0)
  • You supply goods to a registered dealer as an inter-state supply
GST is separate from income tax. Registering for GST does not make your income more taxable under income tax. Both are independent obligations.

Opting out of 44AD — when does it make sense?

If your actual profit is less than 6-8% of turnover, maintaining books and declaring actual income is better. But:

  • You must maintain proper books of accounts
  • You may need a tax audit (if turnover > ₹1 crore — or ₹3 crore if 95%+ receipts are digital)
  • Once you opt out, you cannot switch back to 44AD for the next 5 years

What about business losses?

Under 44AD, you cannot declare a loss — the minimum taxable income is 6-8% of turnover. To declare a business loss, you must opt out of 44AD and maintain full books. Business losses can be carried forward for 8 years and set off against future business income.

Private Limited vs Proprietorship

Section 44AD applies only to individuals and Hindu Undivided Families (HUF) running a proprietorship business. If you converted your business to a Private Limited company, corporate tax rules apply — and MyTax does not cover corporate taxation. You need a CA and a separate filing process.

Check your own tax situation

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