Budget 2025 has introduced various modifications to direct taxation, including a new tax rate slab, an increased basic exemption limit and a higher tax rebate limit under the New Tax Regime. These adjustments aim to alleviate the tax burden on citizens and streamline tax compliance processes. Within the framework of the new tax regime, tax slabs have undergone revisions with the implementation of a new 25% tax rate. The alteration of these tax slabs enable taxpayers to decrease their tax liability by utilizing basic deductions such as the standard deduction and tax rebates. What does this mean for business individuals? Is it possible for them to pay zero tax on their income? Let’s explore. Section 44AD of the Income Tax Act details the presumptive taxation scheme available for businesses in India. This Section plays a crucial role as it offers substantial tax savings for small taxpayers, including freelancers, by eliminating the requirement to maintain detailed books of accounts when filing taxes.
The presumptive taxation scheme enables small taxpayers to pay tax on estimated income rather than having to calculate and deduct all their expenses from their total income. Specifically, Section 44AD allows taxpayers to pay their tax on a presumed percentage of their annual turnover, provided it does not exceed Rs. 2 crores. According to Section 44AD of the Income Tax Act, the tax is computed at 8% of the total gross turnover (or 6% for digital transactions) as long as the annual turnover remains below or equal to Rs.2 crores. For example, consider a business with a turnover of Rs. 2 crores. Under Section 44AD, only 6% of digital receipts need to be declared as profits. Using this example, if the turnover is Rs.2,00,00,000, the presumptive taxation scheme dictates that 6% of the digital receipts would need to be reported, totaling Rs.12,00,000.
Following the new tax rate slab, the tax on these digital receipts would be calculated as under:
Total Income = Rs.12,00,000
Tax calculation would be:
From Rs. 4L to Rs. 8L = Rs. 4,00,000 * 5% = Rs. 20,000
From Rs. 8L to Rs. 12L = Rs. 4,00,000 * 10% = Rs. 40,000
Total tax liability = Rs. 60,000
With the rebate under section 87A (New tax regime) set at Rs. 60,000, the taxable income up to Rs.12,00,000 under the new tax regime becomes tax-free. Therefore, your tax liability is effectively ‘nil,’ allowing you to incur zero tax on a turnover of Rs. 2,00,00,000. Additional benefits of Section 44AD include no requirement for maintaining books of accounts and the absence of a tax audit. However, this scheme is not universally applicable as it does not cover professionals, LLPs or commission agents. Additionally, once you opt out of the scheme, re-entering is restricted for five years.
Assumption: There is no additional income apart from the business receipts.
Source : https://studycafe.in/zero-tax-on-business-turnover-of-up-to-rs-2-crores-365206.html?srsltid=AfmBOoogRCct9WxnM3ALZ2bXjkwpIy0RFY2BHSgT8_NLIid4YOVBrkMl#google_vignette
