Tax Planning for SMEs in Mumbai: A Complete Guide for FY 2026-27
Tax planning for Mumbai SMEs in FY 2026-27: Income-tax Act 2025, entity choice, presumptive tax, advance tax, TDS, MSME payments, GST and professional tax.
Tax planning for a Mumbai SME in FY 2026–27 means working within a new law. The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026, so FY 2026–27 is now "tax year 2026–27", with renumbered sections, TDS rates set out in tables and new form numbers, while returns for FY 2025–26 are still filed under the old Act. The main levers are unchanged in substance: choosing the right business structure and tax regime, using presumptive taxation where it fits, timing advance tax, deducting TDS correctly, paying micro and small suppliers within 45 days, keeping cash transactions low and claiming GST input tax credit on time. Mumbai businesses also need to manage Maharashtra professional tax. This guide from CA Nainit Savla, Chartered Accountants in Mumbai, explains each lever, the key FY 2026–27 dates and a year-end checklist. Information is current to 23 October 2026 and is general guidance, not advice for your specific business.
- FY 2026–27 is tax year 2026–27 under the Income-tax Act, 2025; most rules carry over, but section and form numbers have changed.
- Companies pay 25.17% effective under the concessional regime, or 25% or 30% base rates plus surcharge and cess; MAT is 14% from tax year 2026–27.
- Presumptive taxation (section 58) suits small businesses and professionals with low cash receipts; the higher limits are ₹3 crore and ₹75 lakh.
- Advance tax is due on 15 June, 15 September, 15 December and 15 March; MSME dues unpaid beyond 45 days are deductible only when paid.
- Maharashtra professional tax, GST rate changes and the 30 November ITC deadline are part of a Mumbai SME's tax calendar.
What Changed With the Income-tax Act, 2025?
From 1 April 2026, the Income-tax Act, 2025 governs income earned in FY 2026–27. The concept of "previous year" and "assessment year" is replaced by a single "tax year". Many familiar provisions continue under new numbers, for example:
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| Topic | 1961 Act | 2025 Act |
|---|---|---|
| Presumptive taxation | Sections 44AD, 44ADA, 44AE | Section 58 |
| Tax audit | Section 44AB | Section 63 |
| Payment-basis deductions, incl. MSME dues | Section 43B, 43B(h) | Section 37, 37(2)(g) |
| Depreciation | Section 32 | Section 33 |
| Concessional company tax | Section 115BAA | Section 200 |
| New regime for individuals | Section 115BAC | Section 202 |
| Startup deduction | Section 80-IAC | Section 140 |
| TDS on non-salary payments | Sections 194C, 194J, 194-I and others | Section 393 (rate tables) |
| Return of income | Section 139 | Section 263 |
Published section mappings differ in places; confirm numbers against the enacted Act before quoting them in filings. Returns for FY 2025–26 and assessments of earlier years continue under the 1961 Act.
Which Business Structure Is Most Tax-Efficient?
There is no single answer; the right structure depends on profit levels, how profits will be taken out, funding plans and compliance capacity. The table summarises the headline positions for FY 2026–27.
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| Structure | How profit is taxed | Points to weigh |
|---|---|---|
| Proprietorship | At the owner's slab rates; new regime rebate means no tax up to ₹12 lakh of income | Simple; unlimited liability; presumptive taxation available |
| Partnership firm or LLP | 30% plus surcharge and cess; partner's share of profit exempt in their hands | Remuneration and interest to partners deductible within limits; 10% TDS on partner payments above ₹20,000 |
| Private limited company | 22% concessional (25.17% effective) or 25%/30% plus surcharge and cess | Dividends taxed again in shareholders' hands; best for raising equity; MAT 14% outside the concessional regime |
Model the total tax, including salaries, partner remuneration and dividends, over three to five years before converting or choosing a structure. Our guide to TDS on dividends shows how distributions are taxed at source, and if you are still to incorporate, see how to register a private limited company in India.
Should You Use Presumptive Taxation?
Section 58 of the 2025 Act lets eligible resident businesses and professionals declare profit at a fixed percentage instead of maintaining full books and getting a tax audit.
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| Who | Limit | Deemed profit |
|---|---|---|
| Eligible business | Turnover up to ₹2 crore, or ₹3 crore if cash receipts are within 5% of turnover | 6% of receipts through banking or digital modes; 8% of other receipts |
| Eligible professional | Gross receipts up to ₹50 lakh, or ₹75 lakh if cash receipts are within 5% | 50% of gross receipts |
Presumptive taxation suits businesses with good margins and mostly digital receipts. Two cautions: if you opt out within five years of using the scheme, you can be barred from it for the following five years, and the ITR-4 form now asks for balance-sheet items such as bank balances, debtors and creditors, so basic records are still needed.
How Should You Plan Advance Tax?
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| Due date | Cumulative advance tax | Planning point |
|---|---|---|
| 15 June 2026 | 15% | Base the first instalment on last year's profit trend |
| 15 September 2026 | 45% | Revisit with six months of actual results |
| 15 December 2026 | 75% | Main true-up point for most SMEs |
| 15 March 2027 | 100% (presumptive taxpayers may pay all by this date) | Final adjustment after year-end projections |
Interest applies for shortfalls and late payment. A mid-year profit estimate in September and a year-end projection in December are the simplest controls.
What Deductions and Disallowances Matter Most?
Pay micro and small suppliers within 45 days
Amounts owed to micro and small enterprises registered under the MSMED Act are deductible only when paid if payment is made after the agreed period, which cannot exceed 45 days (15 days where there is no written agreement). The rule, formerly section 43B(h), is section 37(2)(g) of the 2025 Act. Identify Udyam-registered suppliers and clear their dues before 31 March to protect the deduction.
Deduct and deposit TDS on time
Under the 2025 Act, TDS on non-salary payments sits in section 393, with rates in tables, and TCS in section 394; Form 26Q becomes Form 140 and Form 16A becomes Form 131. Failing to deduct TDS, or deducting but not depositing it by the return due date, can lead to disallowance of 30% of the expense. Firms and LLPs must deduct 10% TDS on salary, remuneration, commission, bonus and interest paid to partners above ₹20,000 a year. Update accounting and payroll software to the new section and table references.
Keep cash transactions low
Cash payments above set limits are disallowed, cash receipts above ₹2 lakh in a transaction are penalised, and cash levels decide whether the higher presumptive and audit thresholds apply. Moving collections and payments to banking channels is one of the most effective, low-risk planning steps for any SME.
Time capital expenditure
Depreciation (now section 33) is generally allowed at half the rate for assets used for less than 180 days in the year. Putting assets to use before early October therefore earns the full year's rate; assets put to use later still earn half the rate this year and the full rate next year.
Use available incentives
Eligible startups incorporated before 1 April 2030 can claim a 100% deduction of profits from the eligible business for three consecutive years within their first ten, under section 140 (formerly 80-IAC), subject to an Inter-Ministerial Board certificate, a turnover limit and audit. Companies that opt for the concessional 22% regime give up most such incentives, so compare both positions. Check our Startup India page for recognition, and if your startup takes foreign money, read our guide to FEMA compliance for startups.
Which Mumbai and Maharashtra Taxes Should SMEs Plan For?
Maharashtra professional tax
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| Monthly salary | Professional tax deducted | Notes |
|---|---|---|
| Men up to ₹7,500; women up to ₹25,000 | Nil | Employer still registered under PTRC |
| Men ₹7,501 to ₹10,000 | ₹175 a month | |
| Men above ₹10,000; women above ₹25,000 | ₹200 a month; ₹300 in February | Maximum ₹2,500 a year |
Employers deducting professional tax from salaries register under PTRC; the business itself, and self-employed professionals, enrol under PTEC and pay their own annual professional tax. A business enrolled before 31 May pays its annual PTEC amount by 30 June. Professional tax paid is deductible for income-tax purposes.
GST
Since 22 September 2025, most goods and services carry 5% or 18% GST, with 40% for selected luxury and sin goods, and the 12% and 28% slabs have largely gone. Review your rates and pricing, consider whether the composition scheme or quarterly filing suits your turnover, and claim input tax credit on time: for FY 2026–27 invoices, the deadline is 30 November 2027 or the date you file the annual return, whichever is earlier. Turnover up to ₹2 crore is exempt from the GSTR-9 annual return.
MSME registration
Since 1 April 2025, micro enterprises have investment up to ₹2.5 crore and turnover up to ₹10 crore, small enterprises up to ₹25 crore and ₹100 crore, and medium enterprises up to ₹125 crore and ₹500 crore. Udyam registration gives SMEs the 45-day payment protection as suppliers and access to MSME schemes.
What Should Be on Your Year-End Checklist?
- Project FY 2026–27 profit in December and true up advance tax by 15 December and 15 March.
- Decide the regime (old or new for proprietors; concessional or normal for companies) and record the reasons.
- Clear dues to micro and small suppliers within 45 days, and certainly before 31 March 2027.
- Reconcile TDS deducted and deposited with your books and update TDS software for section 393 tables.
- Review cash receipts and payments against the 5% thresholds for presumptive taxation and audit.
- Time capital expenditure to maximise depreciation where it makes commercial sense.
- Reconcile GST input tax credit with GSTR-2B and claim pending credit before the deadline.
- Check Maharashtra professional tax registration, payments and returns for the business and employees.
- Keep documents for every claim; the new Act has not changed the need for evidence.
Our company compliance overview shows how these filings fit into the wider annual calendar.
Which Dates Should You Watch Next?
Nov
Returns for audit cases, FY 2025–26
21 November 2026 is the date for audit-case returns for FY 2025–26.
Nov
FY 2025–26 GST input tax credit
30 November 2026 is the cut-off for FY 2025–26 GST input tax credit.
Dec
Third advance tax instalment
15 December 2026: cumulative 75% of tax year 2026–27 advance tax.
Dec
FY 2025–26 GSTR-9
31 December 2026 is the date for the FY 2025–26 GSTR-9 annual return.
Mar
Final advance tax instalment
15 March 2027: the final instalment of tax year 2026–27.
Frequently Asked Questions About SME Tax Planning in FY 2026–27
Which income-tax law applies to FY 2026–27?
The Income-tax Act, 2025, which replaced the Income-tax Act, 1961 from 1 April 2026. It uses a single "tax year" in place of previous year and assessment year, so FY 2026–27 is tax year 2026–27. Returns for FY 2025–26, being filed in 2026, are still governed by the 1961 Act, so SMEs are working under both laws during this year.
What are the corporate tax rates for a private limited company in FY 2026–27?
A domestic company can opt for the concessional regime at 22% plus a 10% surcharge and 4% cess, an effective 25.17%, by giving up most incentives and deductions (section 200 of the 2025 Act, formerly 115BAA). Otherwise the rate is 25% if turnover in the look-back year was up to ₹400 crore, or 30% above that, plus surcharge and cess. A new company with no look-back turnover falls in the 25% band.
Can a small business use presumptive taxation in FY 2026–27?
Yes. Section 58 of the Income-tax Act, 2025 consolidates the old presumptive schemes. Eligible resident businesses with turnover up to ₹2 crore, or ₹3 crore if cash receipts are within 5%, can declare 6% of digital receipts and 8% of other receipts as profit. Eligible professionals with receipts up to ₹50 lakh, or ₹75 lakh with the same cash condition, can declare 50%. Opting out within five years can bar the scheme for the next five.
When is advance tax due for FY 2026–27?
15% by 15 June 2026, 45% by 15 September 2026, 75% by 15 December 2026 and 100% by 15 March 2027. Presumptive taxpayers may pay the full amount by 15 March 2027. Paying late attracts interest, so estimate profits mid-year and adjust the December and March instalments.
What is the MSME 45-day payment rule?
If a business owes money to a micro or small enterprise registered under the MSMED Act and does not pay within the agreed period (no more than 45 days, or 15 days where there is no agreement), the expense is deductible only in the year it is actually paid. The rule was section 43B(h) of the 1961 Act and continues as section 37(2)(g) of the 2025 Act. Clearing such dues before 31 March protects the deduction.
What changes for TDS in FY 2026–27?
Under the 2025 Act, TDS on salaries is section 392 and on other payments section 393, which sets rates in tables rather than separate sections such as 194C or 194J; TCS is section 394. Forms are renumbered, for example Form 26Q becomes Form 140. Firms and LLPs must also deduct 10% TDS on salary, remuneration, commission, bonus and interest paid to partners above ₹20,000 a year.
Should a Mumbai SME choose a proprietorship, LLP or private limited company for tax?
It depends on profit levels, funding plans and compliance capacity. A proprietor pays tax at individual slab rates, with the new regime giving a rebate up to ₹12 lakh of income. A company pays 22% to 30% plus surcharge and cess, and dividends are taxed again in shareholders' hands. An LLP pays 30% plus surcharge and cess, with partners' share of profit exempt. Model the total tax, including distributions, before choosing.
What professional tax applies to businesses in Mumbai?
Maharashtra levies professional tax. Employers registered under PTRC deduct it from salaries: nil up to ₹7,500 a month for men and ₹25,000 for women, ₹175 a month for men earning ₹7,501–10,000, and ₹200 a month (₹300 in February) above those levels, a maximum of ₹2,500 a year. Businesses and professionals also enrol under PTEC and pay their own professional tax annually.
How do GST changes affect SME tax planning in FY 2026–27?
Since 22 September 2025, most goods and services are taxed at 5% or 18%, with 40% for selected luxury and sin goods. SMEs should check product and service rates, update invoicing, review composition or quarterly-filing eligibility, and claim input tax credit within the time limit, which for FY 2026–27 invoices ends on 30 November 2027 or the annual return date, if earlier.
Can a startup in Mumbai claim a tax holiday?
Eligible startups can claim a 100% deduction of profits from the eligible business for three consecutive tax years within their first ten years, under section 140 of the 2025 Act, which replaced section 80-IAC. Conditions include being a private limited company or LLP incorporated before 1 April 2030, a certificate from the Inter-Ministerial Board, a turnover limit and an audit. Check eligibility carefully before relying on it.
CA Nainit Savla
CA Nainit Savla is a Chartered Accountant practising in Mumbai and Hyderabad, advising businesses on tax, audit, GST, company law, FEMA and NBFC compliance.
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