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Income Tax for Businessman — Business Deductions, Presumptive & Audit Rules

Updated: 3 June 2026  |  Income-tax Act 2025  |  Section 28-44 PGBP

Business income taxed at slab rates (proprietorship) or 30% flat (partnership/LLP). Section 44AD presumptive: 6-8% deemed profit for turnover up to ₹3Cr — no audit, no books. All legitimate business expenses deductible. Tax audit mandatory above ₹10Cr turnover (digital businesses).
44AD
Presumptive scheme — declare 6-8% of turnover as income, no books, no audit. For business turnover up to ₹3 crore.
6% if >95% receipts via banking/digital. 8% otherwise. File ITR-4 by July 31. Cannot opt out for 5 years without audit. Professionals: Section 44ADA (50% of ₹75L gross).

Business Structure — Tax Rate Comparison

Business TypeTax RateKey Notes
Proprietorship (individual)Slab ratesNew regime: 0% up to ₹12.75L
Partnership firm30% flatPartner salary + interest deductible
LLP30% flatNo DDT on distributions
Private Ltd (Section 115BAA)22% + surchargeNo exemptions/deductions
Private Ltd (with exemptions)25%Turnover ≤₹400Cr
Startup (Section 80-IAC)0% for 3 yearsTax holiday (10-year window)

Frequently Asked Questions

How is business income taxed in India?
Business income is taxed under "Profits and Gains of Business or Profession" (PGBP — Sections 28-44 Income-tax Act 2025) at applicable income tax slab rates for the individual/entity. Individual proprietorship: slab rates same as individual (new regime: 0-4L: 0%, 4-8L: 5%, 8-12L: 10%, 12-16L: 15%, 16-20L: 20%, 20-24L: 25%, 24L+: 30%). Partnership firm: 30% flat (not slab rates). Private Ltd Company: 22% (Section 115BAA, without exemptions) or 25% (turnover ≤₹400Cr). LLP: 30% flat. Key deductions: all legitimate business expenses deductible (rent, salaries, depreciation, marketing, professional fees). Personal expenses: NOT deductible. Mixed expenses: proportional deduction.
What are the presumptive taxation schemes for small businesses?
Presumptive taxation for small businesses: Section 44AD (for small businesses, not professionals): Turnover up to ₹3 crore (digital payments ≤5%): 8% deemed profit. Turnover up to ₹3 crore (>95% digital payments/banking): 6% deemed profit. ITR-4 form, no books required, no audit. Income: 8% or 6% of turnover = income (even if actual profit is higher or lower). Section 44ADA (professionals — CA, doctor, lawyer, engineer, architect, film artist): Gross receipts up to ₹75L: 50% deemed profit. Section 44AE (goods transport): per vehicle income calculation. If opted out of presumptive: must maintain books and get audit if income exceeds limits. Section 44AD eligibility: resident individual, HUF, or partnership firm — NOT company/LLP. Turnover threshold: ₹3Cr (increased in Budget 2023).
What business expenses are tax deductible?
Business expenses deductible under Section 37: Any expenditure wholly and exclusively for business purpose: Staff salaries and wages. Rent for office/factory. Electricity/internet/phone bills (business use). Advertising and marketing expenses. Professional fees (CA, lawyer). Repair and maintenance. Depreciation on assets (Section 32 — WDV method). Travel expenses (business travel). Insurance for business assets. Interest on business loans. Raw materials/inventory purchases. DISALLOWED expenses: Personal/household expenses. Taxes (income tax itself). Payments in excess of ₹10,000 cash (disallowed if cash payment to one person > ₹10K per day — Section 40A(3)). Payments without TDS deduction (30% disallowed — Section 40a(ia)). Donations: Section 80G deduction separately. GST: if ITC claimed, GST is not a business expense for income tax.
When is a tax audit mandatory for business?
Tax audit (Section 44AB) — mandatory for business if: Turnover > ₹1 crore (traditional). Turnover > ₹10 crore if: cash receipts + payments ≤ 5% of total (effectively digital-only business). Presumptive taxation opted out + income < 8% of turnover: audit required. Professional (44ADA opted out): gross receipts > ₹50L. Filing: CA issues Form 3CA/3CB + Form 3CD (audit report). Deadline: September 30 (for tax audit cases). Penalty for not getting audit: 0.5% of turnover (min ₹1.5L, max ₹1.5L). GST audit: separate — for businesses with turnover > ₹5Cr annually (GSTR-9C). For presumptive taxpayers: no audit, no books required — just file ITR-4 by July 31. Maintaining books: required if income > ₹2.5L or gross receipts > ₹25L (for non-presumptive businesses).
What is the difference in tax treatment for proprietorship, partnership, and company?
Business structure tax comparison: Proprietorship: owner taxed at individual slab rates. No separate tax for the business entity. Losses pass through to individual. New regime zero tax up to ₹12.75L (with standard deduction). Partnership firm: 30% flat tax on profits. Interest to partners: deductible (up to 12% p.a. or actual). Salary to working partners: deductible (limits apply). Partner draws: not taxed — already taxed at firm level. LLP (Limited Liability Partnership): 30% flat tax (similar to partnership). Distributions to partners: not taxed separately. Private Limited Company: 22% flat (no exemptions, Section 115BAA) or 25% (with exemptions, turnover ≤₹400Cr). Dividend tax: 10%/20% in hands of shareholders. MAT (Minimum Alternate Tax): 15% on book profits for companies. Startup companies (Section 80-IAC): 100% deduction for 3 years out of first 10 years.

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