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Income Tax · New ActIncome-tax Act 2025 for small businesses: compliance transition checklist
For a small business, the new Act touches invoices, TDS, accounting software, presumptive tax and audit. Here is a step-by-step transition checklist for Tax Year 2026-27, with the new section numbers and an example of a trader in Delhi.
Small businesses – proprietorships, partnership firms, LLPs and small companies – deal with income tax in more places than salaried people: TDS on payments, advance tax, books, presumptive tax, audit and the return. The Income-tax Act, 2025 applies to all business income earned from 1 April 2026. Rates and most thresholds were carried over, but references and forms changed.
Key provisions for a small business
| Area | 1961 Act | 2025 Act |
|---|---|---|
| Business income | Sections 28–44DB | Sections 26–66 |
| Presumptive taxation | 44AD / 44ADA / 44AE | 58 |
| Books of account | 44AA | Corresponding provision (check mapping) |
| Tax audit | 44AB | 63 |
| Cash expense disallowance | 40A(3) | Corresponding provision |
| Payments to MSEs | 43B(h) | Corresponding provision |
| TDS (contractors, professionals, rent, commission) | 194C, 194J, 194I, 194H | 393 (tables) |
| TDS on partners' remuneration | 194T | 393(3) |
| Advance tax | 207–211 | 403–408 |
The 10-point transition checklist
- Update TDS masters in your accounting software (Tally, Busy, Zoho) with the new section codes from Section 393 for transactions from 1 April 2026.
- Revise agreements and purchase orders that mention old sections – use wording like "TDS as applicable under the Income-tax Act, 2025".
- Collect PAN of every vendor – the higher rate for no PAN (Section 397(2), old 206AA) still applies.
- Recheck presumptive eligibility for Tax Year 2026-27 – turnover limits and the 5% cash test.
- Plan advance tax under the new Act – instalments by 15 June, 15 September, 15 December and 15 March; presumptive cases pay by 15 March.
- Pay MSE suppliers within 45 days (15 days where there is no agreement) to protect the deduction.
- Avoid cash payments above ₹10,000 per person per day.
- Keep two sets of references – FY 2025-26 audit and return under the old Act (due in 2026) and current-year compliance under the new Act.
- Partners' remuneration – deduct TDS at 10% above ₹20,000 under the new provision.
- Review the regime – proprietors with business income can opt out of the new regime but can return only once.
Worked example: a Delhi trader in Tax Year 2026-27
Example: Sapna Enterprises, a proprietorship in Wazirpur, expects turnover of ₹2.6 crore in Tax Year 2026-27, with 97% of receipts by bank transfer and UPI. It pays a transporter ₹8,00,000 during the year (single bills under ₹30,000) and rent of ₹70,000 a month for its godown.
| Point | Analysis |
|---|---|
| Presumptive eligibility | Turnover ₹2.6 crore is above ₹2 crore but within ₹3 crore and cash receipts are below 5%, so Section 58 can be used |
| Presumptive income | 6% of digital receipts ₹2.522 crore = ₹15,13,200; 8% of cash ₹7.8 lakh = ₹62,400; total ₹15,75,600 (minimum) |
| Tax audit | Not required if profit declared at or above the presumptive rate |
| TDS on transporter | Contractor TDS under Section 393; a transporter owning ten or fewer goods carriages who gives a declaration with PAN is exempt from TDS |
| TDS on rent | 10% on ₹8,40,000 = ₹84,000, as monthly rent exceeds ₹50,000 |
| Advance tax | Whole tax by 15 March 2027 (presumptive) |
Books of account and records
Even presumptive taxpayers must keep basic records – bank statements, sales and purchase invoices, GST returns and stock details – to support the turnover declared. Businesses outside the presumptive scheme must maintain books if income or turnover exceeds the prescribed limits, as under the old law.
Common mistakes
- Keeping old TDS sections in software, producing wrong statements.
- Assuming the presumptive ₹3 crore limit applies without checking the cash receipts condition.
- Paying MSE suppliers late and losing the expense deduction.
- Forgetting the 194T-type TDS on partners' salary and interest.
Key takeaway
The new Act does not raise taxes for small businesses, but it does require clean-up of software, agreements and TDS processes. Do it now, before the first quarterly TDS statements and the 15 December instalment. Our accounting, TDS and payroll and tax audit teams can help with the transition.
Official references
Official sources to verify the current text, notifications and circulars:
Frequently asked questions
Has the presumptive tax limit changed under the new Act?
The presumptive scheme is now Section 58 in table form. The turnover limits (₹2 crore, or ₹3 crore with cash receipts within 5%) and rates (6% digital / 8% cash) were carried over.
Is tax audit still required above ₹1 crore?
Yes. Tax audit is now Section 63, with the same limits – ₹1 crore (₹10 crore where cash receipts and payments are each within 5%) for business and ₹50 lakh for profession.
Do I need to change my invoice format?
Invoices themselves are governed by GST law. But references to income-tax sections – for example "TDS under Section 194C" on bills or agreements – should be updated to the new provisions for Tax Year 2026-27.
When is the first tax audit under the new Act?
For Tax Year 2026-27, with the report due in 2027 (by 30 September, unless extended).
Do small businesses need to change their accounting year?
No. The accounting year remains April–March. The change is only in the term used – Tax Year – and in section references.
Is the 1% TDS on purchase of goods still applicable?
TDS on purchase of goods applies at 0.1% for buyers with turnover above ₹10 crore on purchases exceeding ₹50 lakh from a seller, under Section 393 from Tax Year 2026-27 (old Section 194Q).
When is the first advance tax under the new Act?
The 15 June 2026 instalment for Tax Year 2026-27 was the first under the new Act. Presumptive taxpayers pay the full amount by 15 March 2027.
This article is general information on the law as on 10 November 2026, written for educational purposes. It is not professional advice for your case. Section numbers under the Income-tax Act, 2025 should be confirmed with the official section mapping on the Income Tax Department website before use in filings.
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