Read this first: the law changed on 1 April 2026. The Income-tax Act, 2025 replaced the Income-tax Act, 1961 with effect from 1 April 2026. FY 2026-27 is therefore the first tax year under the new Act; the separate concepts of "previous year" and "assessment year" have been replaced by a single "tax year", so what practitioners would have called AY 2027-28 is now simply the tax year 2026-27, with returns filed in 2027. The new Act largely carries forward the substance of the old provisions but renumbers and regroups them. In this guide, section numbers of the 1961 Act are used as familiar reference labels (for example "Section 44AD") because most forms, case law, software and professionals still use them; the corresponding provision in the 2025 Act should be confirmed using the official section mapping published on incometax.gov.in. Returns for FY 2025-26 filed during 2026 remain governed by the 1961 Act.
1. Statutory Overview and Legislative Intent
Small businesses and professionals form the majority of taxpayers with business income, yet many cannot afford full bookkeeping and audit. Presumptive taxation offers a deal: declare income at a fixed percentage of turnover, and the law dispenses with books of account and audit. Larger businesses get the opposite deal: a tax audit by a Chartered Accountant, reported in a detailed form that gives the department structured data. Advance tax ensures that tax is paid as income is earned, and the updated return gives taxpayers a paid route to correct omissions without litigation.
- Section 44AD: presumptive income for eligible businesses at 8% of turnover (6% for digital receipts).
- Section 44ADA: presumptive income for specified professionals at 50% of gross receipts.
- Section 44AE: presumptive income for owners of goods carriages.
- Section 44AA: maintenance of books of account.
- Section 44AB: compulsory tax audit.
- Section 43B(h): deduction for payments to micro and small enterprises only on actual payment when made beyond the time allowed by Section 15 of the MSMED Act, 2006.
- Sections 207 to 211: advance tax liability and instalments; Sections 234A, 234B and 234C: interest.
- Section 139(8A) and Section 140B: updated return and additional tax.
2. Applicability and Threshold Matrix
A. Presumptive schemes compared
| Parameter | Section 44AD | Section 44ADA | Section 44AE |
|---|
| Eligible persons | Resident individual, resident HUF, resident partnership firm (not LLP) | Resident individual, resident partnership firm (not LLP) | Any person (including companies) owning goods carriages |
| Activity | Any business other than plying of goods carriages, agency business, and commission or brokerage income; not available to professionals referred to in Section 44AA(1) | Legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, and other notified professions (including authorised representatives, film artists, company secretaries and information technology) | Plying, hiring or leasing goods carriages |
| Turnover or size limit | Rs. 2 crore; Rs. 3 crore where cash receipts do not exceed 5% of total turnover (that is, at least 95% received through banking or digital channels) | Rs. 50 lakh; Rs. 75 lakh where cash receipts do not exceed 5% of gross receipts | Not more than 10 goods carriages owned at any time during the year |
| Deemed income | 8% of turnover; 6% of turnover received by account payee cheque, draft, ECS or other prescribed electronic modes on or before the due date of return | 50% of gross receipts | Heavy goods vehicle (gross vehicle weight above 12,000 kg): Rs. 1,000 per tonne of gross vehicle weight per month or part. Other goods carriages: Rs. 7,500 per vehicle per month or part |
| Higher income | May declare higher income | May declare higher income | May declare higher income |
| Books of account | Not required while in the scheme | Not required while in the scheme | Not required while in the scheme |
| Advance tax | Single instalment by 15 March | Single instalment by 15 March | Normal instalments |
| Lock-in | If the taxpayer opts out in any of the five years following a year of opting in, he cannot opt in again for the next five years (Section 44AD(4)) | No similar lock-in | No similar lock-in |
B. Tax audit applicability under Section 44AB
| Case | Audit required if |
|---|
| Person carrying on business (not opting for presumptive scheme) | Total sales, turnover or gross receipts exceed Rs. 1 crore |
| Business with low cash transactions | Limit is Rs. 10 crore where aggregate cash receipts do not exceed 5% of total receipts and aggregate cash payments do not exceed 5% of total payments |
| Profession | Gross receipts exceed Rs. 50 lakh |
| Section 44AD lock-in breach | Taxpayer covered by Section 44AD(4) whose income exceeds the basic exemption limit |
| Section 44ADA profession declaring lower income | Income declared below 50% and total income exceeds the basic exemption limit |
| Section 44AE declaring lower income | Income declared below the presumptive amount |
C. Section 43B(h): payments to micro and small enterprises
| Element | Rule |
|---|
| Covered suppliers | Micro and small enterprises registered under the Udyam framework as manufacturers or service providers. Medium enterprises are outside the provision. Traders registered on Udyam only for priority sector lending are not covered by the delayed payment provisions of the MSMED Act |
| Time limit (MSMED Act, Section 15) | Payment on or before the agreed date, which cannot exceed 45 days from the day of acceptance; where there is no written agreement, within 15 days |
| Tax consequence | If payment is made after the time limit, the expense is allowed only in the year of actual payment, regardless of the method of accounting |
| Year-end position | An amount outstanding on 31 March is allowed in that year only if paid within the 15 or 45 day time limit |
| Effective from | FY 2023-24 onwards (introduced by the Finance Act, 2023) |
D. Updated return (ITR-U) additional tax
| Updated return filed | Additional tax (Section 140B) |
|---|
| Within 12 months from the end of the relevant assessment year | 25% of aggregate of tax and interest payable |
| After 12 months but within 24 months | 50% |
| After 24 months but within 36 months | 60% |
| After 36 months but within 48 months | 70% |
The 36 and 48 month windows were added by the Finance Act, 2025 with effect from 1 April 2025. Earlier, the window was 24 months with additional tax of 25% or 50%.
3. Step-by-Step Compliance and Filing Workflow
A. Using a presumptive scheme
- Confirm eligibility: entity type, nature of activity and turnover. Compute the share of cash receipts to test the higher limits.
- Track receipts by mode. Digital receipts received by the due date of return qualify for the 6% rate under Section 44AD.
- Even without books, keep bank statements, sales invoices, GST returns and a simple record of cash receipts. GST turnover and AIS data are matched with the turnover declared.
- Pay advance tax in full by 15 March.
- File ITR-4 (Sugam) where eligible (resident individual, HUF or firm other than LLP with total income up to Rs. 50 lakh), or ITR-3 or ITR-5 otherwise. Report the turnover, presumptive income, and balance sheet items (sundry debtors, creditors, stock and cash) in the presumptive schedule.
B. Tax audit
- The assessee maintains books under Section 44AA and Rule 6F (for professionals), and appoints a Chartered Accountant for the tax audit. ICAI limits a CA to 60 tax audit assignments in a year.
- The auditor prepares Form 3CA (where accounts are already audited under another law, such as the Companies Act) or Form 3CB (other cases), along with Form 3CD, a statement of particulars covering more than 40 clauses: nature of business, method of accounting, changes in stock valuation, depreciation, Section 40A(3) cash payments, Section 43B items including MSME payments under 43B(h) (clause 26) and MSME interest disclosure (clause 22), TDS compliance, loans and deposits under Sections 269SS and 269T, and quantitative details.
- The auditor uploads the report on the e-filing portal with UDIN and DSC; the assessee accepts it from his login.
- The return is filed after the audit report, by the due date.
C. Advance tax
- Estimate total income for the year, including capital gains and other income, and compute tax after TDS and TCS.
- If the remaining liability is Rs. 10,000 or more, pay advance tax through Challan 280 on the e-Pay Tax service, selecting minor head 100 (advance tax). Resident senior citizens without business or professional income are exempt (Section 207(2)).
- Revise the estimate each quarter and pay instalments as per the schedule. Capital gains or dividend arising after an instalment date are included in subsequent instalments, without interest for the earlier shortfall attributable to them.
D. Filing an updated return
- Check eligibility. An updated return cannot be filed where it is a return of loss, reduces the tax liability, increases a refund, results in or increases a loss, where search or survey has been initiated, where assessment or reassessment is pending or completed for that year, or where the department has information under specified laws. Where a notice under Section 148A has been issued and an order has been passed holding that it is not a fit case for reassessment, an updated return may be filed (as clarified by the Finance Act, 2025).
- Compute tax and interest on the updated income, then compute additional tax under Section 140B.
- Pay tax, interest, fee and additional tax through Challan 280 under self-assessment.
- File the applicable ITR form with Form ITR-U on the e-filing portal, with the reason for updating (income not reported, wrong head, wrong rate, reduction of carried-forward loss, and so on). Only one updated return may be filed for an assessment year.
4. Statutory Due Dates and Frequency Table
| Compliance | Due date for FY 2026-27 | Notes |
|---|
| Advance tax, first instalment | 15 June 2026 | At least 15% of estimated tax |
| Advance tax, second instalment | 15 September 2026 | At least 45% cumulative |
| Advance tax, third instalment | 15 December 2026 | At least 75% cumulative |
| Advance tax, fourth instalment | 15 March 2027 | 100% cumulative; the only instalment for Sections 44AD and 44ADA |
| Tax audit report (Forms 3CA or 3CB and 3CD) | 30 September 2027 | One month before the due date of return for audit cases |
| Transfer pricing report (Form 3CEB) | 31 October 2027 | For international or specified domestic transactions |
| Return of income, non-audit cases | 31 July 2027 | Subject to the dates prescribed under the 2025 Act and any CBDT extension |
| Return of income, audit cases | 31 October 2027 | 30 November 2027 where Form 3CEB is required |
| Belated or revised return | 31 December 2027 | Three months before the end of the relevant year, unless the 2025 Act or Finance Act provides otherwise |
| Updated return for FY 2026-27 | Within 48 months from the end of the period that corresponds to the relevant assessment year | Additional tax rises with time |
5. Interest, Late Fees and Penal Consequences
| Default | Provision (1961 Act reference) | Computation |
|---|
| Late filing of return | Section 234A | Simple interest at 1% per month or part on the tax unpaid on the due date, from the day after the due date to the date of filing |
| Advance tax paid is less than 90% of assessed tax | Section 234B | Simple interest at 1% per month or part on the shortfall, from 1 April following the financial year to the date of determination of income |
| Deferment of advance tax instalments | Section 234C | Simple interest at 1% per month on the shortfall: for 3 months each for the June, September and December instalments, and 1 month for the March instalment. No interest if at least 12% is paid by 15 June and 36% by 15 September. For Sections 44AD and 44ADA, 1% for 1 month on any shortfall on 15 March |
| Late filing fee | Section 234F | Rs. 5,000; Rs. 1,000 if total income does not exceed Rs. 5 lakh |
| Failure to get accounts audited | Section 271B | 0.5% of turnover or gross receipts, or Rs. 1,50,000, whichever is less; not levied if reasonable cause is shown (Section 273B) |
| Failure to maintain books | Section 271A | Rs. 25,000 |
| Section 43B(h) breach | Section 43B(h) | Disallowance of the expense in the current year, with tax and interest on the increased income |
| Under-reporting discovered later | Section 270A | Penalty of 50% of tax on under-reported income, or 200% for misreporting. An updated return avoids this for the income it covers |
6. Practical Audit Pitfalls and Best Practices
- Turnover consistency. GST turnover, bank credits and the turnover in the return must reconcile. Differences explained by exempt supplies, advances or reimbursements should be documented.
- Test the 5% cash condition early. The higher limits for Sections 44AD, 44ADA and 44AB depend on the share of cash. A few large cash receipts near year end can push a business into audit.
- Do not combine Sections 44AD and 44ADA for the same activity, and remember that LLPs and companies cannot use either.
- Build a vendor MSME register. Collect Udyam certificates, tag micro and small vendors, track payment terms and ensure payment within 15 or 45 days, especially around 31 March, to avoid Section 43B(h) disallowance.
- Keep advance tax workings. A short memo with the estimate at each instalment date helps defend interest computations and supports any claim of income arising after the instalment.
- Use the updated return proactively. If AIS shows income that was missed, an updated return within 12 months costs 25% additional tax, which is usually far less than penalty and litigation.
- Plan for the new Act. Clauses of Form 3CD and the presumptive schedules in the ITR are being aligned with the Income-tax Act, 2025. Review the updated forms before planning the audit timetable for tax year 2026-27.
7. Statutory References and Official Sources
- Income-tax Act, 2025 (from 1 April 2026), provisions corresponding to presumptive taxation, books of account, audit, advance tax, interest and updated returns; official section mapping on incometax.gov.in.
- Income-tax Act, 1961: Sections 43B(h), 44AA, 44AB, 44AD, 44ADA, 44AE, 139(4), 139(5), 139(8A), 140B, 207 to 211, 234A, 234B, 234C, 234F, 270A, 271A, 271B and 273B.
- Finance Act, 2023 (Section 43B(h) and higher limits under Sections 44AD and 44ADA); Finance Act, 2021 (Rs. 10 crore audit limit); Finance Act, 2022 (updated return); Finance Act, 2025 (extension of the updated return window to 48 months).
- Income-tax Rules, 1962: Rules 6F and 6G, Forms 3CA, 3CB and 3CD, and the ITR-U form.
- Micro, Small and Medium Enterprises Development Act, 2006: Sections 15 to 17 and 22.
- ICAI Council guidelines on the limit of tax audit assignments.
- Official portals: incometax.gov.in (e-filing, e-pay tax, AIS); udyamregistration.gov.in.
Authored by Vipin