Zero Tax on Business Turnover Up to 2 Crore in India for FY 2025-26

In Budget 2025, the government gave big relief to taxpayers by modifying tax slabs, rendering income up to Rs. 12,00,000 tax-free. Furthermore, Businesses with a turnover of up to Rs. 2 Crore could now have zero tax liability. Continue reading to learn how businesses with a turnover of up to Rs. 2 Crore can take advantage of this change.

Presumptive Taxation Scheme for Businesses

• The government introduced the presumptive taxation system under Section 44AD of the Income-tax Act, 1961 (Act) to provide relief to small taxpayers with business income. 
• The scheme is for businesses other than plying, hiring, and leasing businesses, as mentioned in Section 44AE of the Act.
• Businesses that are eligible to take the presumptive taxation scheme have to report profits of 8% of turnover or gross receipts for non-digital transactions or 6% for digital transactions, whichever is applicable.

Eligible Assessees under Section 44AD of the Act

The eligible assessees under Section 44AD are as follows:

• Individuals
• Hindu Undivided Family (HUFs)
• Partnership firms (other than limited liability partnership firms)

Eligible Business under Section 44AD of the Act

The eligible assessees under Section 44AD are as follows:

• Any business, except for the business of plying, hiring, or leasing goods carriages mentioned in section 44AE; and
• A business whose total turnover or gross receipts in the previous year does not exceed Rs. 2 crore ( Rs. 3 crore if at least 95% of the total turnover or gross receipts are received in online mode).

Will All Assessees u/s 44AD Enjoy Zero Tax Liability with Turnover Up to Rs. 2 Crore for FY 2025-26?

No, only resident individuals i.e. proprietorship businesses will be able to enjoy zero tax liability if their turnover is up to Rs. 2 crore as the rebate under section 87A is only applicable to the individual residents. So, only individual taxpayers will have zero tax liability if their turnover is up to Rs. 2 Crore. 

Example, Mr A a proprietor has a business turnover of Rs. 2 Crore in FY 2025-26. (Assuming no other Income apart from this). Mr. A had opted for the presumptive taxation under section 44AD.

The Tax Liability of Mr. A will be computed as follows:

Conclusion

It is not that all the business have zero tax liability. In FY 2025-26, the zero tax benefit under Section 44AD is available only to individual taxpayers (proprietorship businesses) with a turnover upto Rs. 2 Crore. The rebate under Section 87A, which offers tax relief for income up to Rs. 12,00,000, applies exclusively to individuals, meaning other business structures like Hindu Undivided Families (HUFs) and partnership firms are not eligible for this benefit. Therefore, while small businesses can take advantage of this scheme, the zero tax liability is limited to individual taxpayers only.