Zero Tax on ₹2 Crore Business from April 1st 2025? Here’s the Truth

In a post-budget India, one tax-related information has taken the internet by storm. It claims that from the upcoming financial year, small businesses earning up to Rs. 2 crores annually will pay zero income tax. Millions are reacting with excitement, some planning to distribute their business among family members, and others rushing to apply for multiple GST numbers.

But what is the truth behind this viral claim?

This article is your comprehensive, in-depth guide to Section 44AD of the Income Tax Act and the tax exemption on business income up to Rs. 2 crores. We will clarify eligibility, exceptions, conditions, legal points, and practical strategies you can actually implement for maximum tax efficiency in FY 2025–26.

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The Presumptive Taxation Scheme

Section 44AD is a provision under the Income Tax Act that allows eligible small taxpayers to declare income on a presumptive basis, thus avoiding the burden of maintaining books of accounts and audits. Instead of calculating actual profit, a fixed percentage of turnover is assumed as income, and taxes are paid accordingly or not paid at all if the income falls under the taxable threshold after rebates.

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Key Thresholds for FY 2025–26:

• Turnover Limit: Rs. 2 crores
• Presumptive Income Rate:
  • 6% if all receipts are through digital means or banking channels
  • 8% if receipts are in cash

If the declared presumptive income is within the exemption limit (currently Rs. 7 lakhs for individuals), no tax is payable after rebate under Section 87A.

Who is Eligible Under Section 44AD?

Not every business or individual qualifies for this benefit. Section 44AD is strictly applicable to a well-defined category.

Eligible Assessees:

1. Resident Individuals
2. Resident Hindu Undivided Families (HUFs)
3. Resident Partnership Firms (excluding LLPs)

Ineligible Assessees:

• Non-Resident Individuals (NRIs)
• Limited Liability Partnerships (LLPs)
• Private Limited and Public Limited Companies
• Trusts, Associations of Persons (AOPs), and other artificial entities

Even within individuals and partnership firms, eligibility depends on business type and income declaration practices.

Tax Planning For NRIs, click here

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Who is Not Eligible Based on Business Type?

One of the most misunderstood aspects is the type of income or activity that qualifies. The benefit is only applicable to eligible businesses, not professions.

Ineligible Under Section 44AD:

• Professionals under Section 44ADA: Chartered Accountants, Doctors, Engineers, Lawyers, Architects, IT Consultants, Artists, and performers
• Income from Commission or Brokerage
• Speculative businesses, including Futures and Options (F&O) trading and Intraday stock trading
• Agency business (except in specific cases under 44AE)
• Remuneration or interest received from partnership firms
• Businesses claiming deductions under: Section 10A / 10AA / 10B / 10BA and Chapter VI-A (Sections 80H to 80RRB)

If your income falls under any of these categories, you are automatically disqualified from using Section 44AD, regardless of your turnover.

How Does the Supreme Court Shape Tax Laws? Discover Landmark Rulings! Click Here

Clarifying a Major Confusion: Is It Really “Zero Tax”?

Technically, yes — if your declared income under Section 44AD is within the taxable limit, your tax liability will be zero.

Let’s consider a common scenario:

• Your total business turnover: Rs. 2 crores (digital payments only)
• Presumed profit at 6%: Rs. 12 lakhs
• Tax on Rs. 12 lakhs: ~Rs. 60,000
• Eligible for rebate under Section 87A (if total income is under Rs. 7 lakhs): Final tax = Zero

Important Note: If your actual profit is higher than 6%, you are legally obligated to declare the actual higher profit, not the presumptive one. Falsifying income to fit within 44AD may lead to scrutiny or penalties.

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Real case scenario

1. If a business has Rs. 2 crores in fully digital sales and declares a 6% profit (Rs. 12 lakhs), no tax is payable after rebate, and there is no need to maintain books or conduct an audit.
2. If the actual profit is lower than 6%, say Rs. 8 lakhs (4%), the business cannot use Section 44AD and must maintain proper books and file a regular income tax return (likely ITR-3), though audit is still not required.
3. If the actual profit is higher, such as Rs. 30 lakhs (15%), the business must declare the actual amount but can still file under Section 44AD. However, the tax will be applicable as per normal slabs, and the rebate may not apply.

Misusing Section 44AD

Many are now planning to register family members separately and allocate Rs. 2 crore turnover per person, this is not a sustainable or safe strategy. Because:

• Tax authorities monitor unusual patterns of GST numbers within a family.
• Artificial splitting of businesses (to stay under Rs. 2 crore) may be challenged as tax avoidance.
• Multiple proprietorships without genuine separation of business activities may lead to investigations or reassessment.

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What If You Want to Show Lower Profit Than 6%?

If your actual profit is lower and you want to report that:

• You must maintain books of accounts
• You must file ITR-3 with proper profit and loss statements
• The audit is no longer mandatory just for declaring lower profits under 44AD (change made years ago)

Many professionals and business owners are still operating under outdated assumptions that audit is mandatory for lower-than-presumptive profits — this is incorrect.

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Section 44AE: For Transporters

If you’re in the business of goods transportation, you may be eligible under Section 44AE, which has separate provisions for commercial vehicles. The Rs. 2 crore rule does not apply here — and you should not attempt to claim under 44AD.

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What You Should Do Right Now

1. Identify whether you fall under eligible categories for Section 44AD.
2. If it is higher than 6% or 8%, you must declare the actual amount.
3. Avoid artificially creating multiple GST accounts. Just Focus on long-term compliance rather than short-term savings.
4. Do not misuse presumptive taxation to underreport income. Income Tax authorities use spending patterns, assets, FDs, fees, etc. to estimate real income.
5. April is around the corner. Understand which ITR form applies, whether you need books, and what your realistic tax outcome is.

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Conclusion

Yes, it is possible to pay zero tax on a Rs. 2 crore business turnover, but only if certain legal conditions are met. You need to be an eligible taxpayer, such as an individual, a Hindu Undivided Family (HUF), or a partnership firm. Your business must qualify under the scheme, which excludes professions and speculative activities. You must declare a minimum profit of 6% (for digital transactions) or 8% (for cash transactions), or your actual profit if it's higher and you should not have claimed certain tax deductions, and your total turnover must not exceed Rs. 2 crores.

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