How to File Taxes for a Small Business in India

Running a small business changes several things about how income tax works compared to a salary or freelance income, a different presumptive scheme, mandatory advance tax in most cases, and a GST question that runs on its own separate track.

Presumptive taxation under Section 44AD

For resident individuals, HUFs, and partnership firms (not LLPs) with turnover up to ₹3 crore (₹2 crore if less than 95% of receipts come through digital channels), Section 44AD lets you skip maintaining detailed books and declare a fixed percentage of turnover as taxable profit instead.

A worked example. A small retail business does ₹80 lakh in annual turnover, with ₹70 lakh coming through UPI and card payments and ₹10 lakh in cash. Under 44AD, taxable profit is deemed to be 6% of ₹70 lakh (₹4.2 lakh) plus 8% of ₹10 lakh (₹80,000), a total of ₹5 lakh, regardless of what the business's actual accounting profit was. If real profit margins run lower than this, presumptive taxation costs more than regular books would, worth checking both ways rather than defaulting into it.

The five-year commitment

Once you opt into Section 44AD, you're expected to stay in it for five consecutive assessment years. Opting out earlier, if a bad year makes it less favorable, triggers a requirement to maintain full books and potentially get audited, and you're barred from re-entering presumptive taxation for the next five years after that. This makes the initial decision worth more thought than a single year's convenience.

Advance tax works differently under 44AD

Businesses using Section 44AD don't need to pay advance tax in the usual quarterly installments other taxpayers follow. Instead, 100% of the advance tax liability is due in a single installment by 15 March of the financial year. Missing this single deadline carries the same interest consequences as missing the regular quarterly schedule would.

GST is a separate question entirely

Presumptive taxation under 44AD is an income tax mechanism and has no direct link to GST registration. GST registration is generally required once turnover crosses ₹40 lakh for goods or ₹20 lakh for services (lower thresholds apply in some special category states). A business can be well under the 44AD turnover ceiling while still being required to register for GST, or vice versa, the two thresholds and systems operate independently.

Which ITR form to file

Businesses using Section 44AD file using ITR-4 (Sugam). If the business maintains regular books instead (either by choice or because it's above the presumptive threshold), ITR-3 applies. This is distinct from the ITR-4 filing used by freelancers and professionals under Section 44ADA, similar form, different underlying section, see how freelancers and independent professionals file if that's a closer match to your situation instead.

This article is educational and not personalised financial advice. Thresholds and rules referenced here reflect the position as of FY 2025-26 per the Income Tax Department; always confirm current limits there before filing.