No Tax Up to ₹1.5 Crore Cash & ₹2 Crore Digital Turnover – Section 44AD Guide

How Business Owners Can Legally Pay Zero Income Tax

For Financial Year 2025-26, eligible small business owners can legally reduce their income tax liability to **zero** by opting for Presumptive Taxation under Section 44AD and availing rebate under Section 87A of the Income-tax Act.

By declaring business income at 6% or 8% of turnover, the taxable income remains within the rebate threshold, resulting in **nil tax payable** under the New Tax Regime.

What Is Section 44AD?

Section 44AD provides a simplified method of taxation for resident individuals, HUFs and partnership firms (excluding LLPs). Under this scheme, profit is declared at a prescribed percentage of turnover and:

Books of accounts are not required (Section 44AA exemption)

Tax audit is not applicable (Section 44AB exemption)

Profit declaration is accepted without scrutiny risk

Compliance cost is minimal

Presumptive Profit Rates Under Section 44AD

| Receipt Mode | Presumptive Profit |

|-------------|-------------------|

| Digital receipts (UPI / Bank) | **6% of turnover** |

| Cash receipts | **8% of turnover** |

Turnover That Can Enjoy Zero Income Tax

Under the New Tax Regime (Section 115BAC), taxable income up to ₹12,00,000 qualifies for full rebate under Section 87A.

Therefore:

| Receipt Mode | Presumptive Profit | Turnover Eligible for Zero Tax |

|-------------|-------------------|-------------------------------|

| Digital | 6% | **₹2,00,00,000** |

| Cash | 8% | **₹1,50,00,000** |

Eligible Businesses

This scheme is applicable for:

Kirana & Supermarkets

Hardware & Electrical Stores

Cloth & Footwear Traders

Mobile & Electronics Shops

Wholesale & Retail Dealers

Small Manufacturing Units

**Note:** Not applicable to professionals, commission agents and agency businesses.

Additional Advantages

**No Books of Accounts** – Simplified record keeping

**No Audit Compliance** – Save on CA fees

**Predictable Tax Liability** – Know your tax in advance

**Low Scrutiny Exposure** – Minimal risk of IT notices

**Simple Return Filing** – File ITR-4 easily

Mandatory Lock-In Rule

Once Section 44AD is adopted, it must be followed for **five consecutive assessment years**.

**Warning:** Exiting early attracts compulsory audit compliance for the next five years.

When Section 44AD Should NOT Be Used

Consider regular taxation if:

Actual profit is **lower than 6%/8%**

Audited financial statements are required for **bank loans**

You need to claim **depreciation** or **business loss** deductions

Year-End Compliance Checklist

Before March 31st, ensure you:

Verify turnover from GST & AIS

Choose correct tax regime

Separate professional income (if any)

File return within due date

Conclusion

Section 44AD provides one of the most powerful tax planning opportunities for small business owners, enabling them to operate **high-turnover businesses with zero tax** and minimal compliance risk.

For turnover analysis, GST reconciliation and secure filing, connect with TaxByAkram – Your Presumptive Tax Specialist.