Section 44AD for Shops: 6%/8% Profit Rule, Now Section 58

Updated 21 October 2026 · By Ashok Sachdev · Sources: Income-tax Act, 2025, sections 58, 404 and 408 (Income Tax Department). Not tax advice; confirm with your CA.

Most small shops in India, from kirana and clothing stores to mobile and hardware shops, can pay income tax this way. It is called presumptive taxation: the law presumes your profit from your turnover, so you do not have to prove every expense. Below are the limits, the maths and the traps, with the section numbers as they stand for the current tax year.

In short

• Limit: turnover up to ₹2 crore, or up to ₹3 crore if cash received is 5% of turnover or less.
• Rate: 6% of turnover received by bank, UPI or other digital modes (in the year or before the return due date), and 8% of the rest. You can always declare more.
• Who: a resident individual, HUF or partnership firm (not an LLP). It does not cover commission, brokerage or agency income.
• No deductions: rent, salaries, depreciation and losses cannot be set off against the presumptive profit.
• Advance tax: pay all of it by 15 March, once your tax for the year is ₹10,000 or more.
• Exit trap: declaring a lower profit needs books and an audit, and leaving the scheme within 5 years locks you out for the next 5.

Section 44AD or section 58: which one applies to you?

The Income-tax Act, 2025 replaced the Income-tax Act, 1961 from 1 April 2026. It says "tax year" where the old law said "previous year". The old section 44AD scheme now sits in section 58, at serial number 1 of its table. The limits and the 6%/8% rates are the same.

Banks, CAs and most websites will keep saying "44AD" for a while. It is the same scheme with a new section number.

Who can use it, and who cannot

Section 58(11) defines an "eligible assessee". It is an individual, a Hindu undivided family or a firm other than an LLP, resident in India, who:

• has not claimed any deduction under Chapter VIII-C for that tax year;
• does not carry on a specified profession (doctors, lawyers, architects and similar professions have their own 50% scheme);
• does not earn any income in the nature of commission or brokerage; and
• does not carry on any agency business.

That last row catches many mobile shops. A small recharge commission can matter more than the turnover, so settle it with your CA before you file.

The turnover limit: ₹2 crore or ₹3 crore

The basic limit is ₹2 crore of total turnover or gross receipts in the tax year. It rises to ₹3 crore when the amount received in cash is 5% of turnover or less. Under section 58(9), a cheque or bank draft that is not account-payee counts as cash. UPI, cards, net banking and account-payee cheques are the usual non-cash modes.

Turnover means your sales, not your profit. For a shop near ₹2 crore, the 5% cash test decides whether the scheme is still open to you.

How to calculate presumptive profit: a worked example

EXAMPLE figures. A kirana store run by its owner has turnover of ₹90,00,000 in tax year 2026-27:

• ₹58,00,000 received by UPI and card during the year;
• ₹2,00,000 of udhaar collected by UPI in May 2027, before the return due date;
• ₹30,00,000 received in cash.

The 6% rate covers turnover received by a specified banking or online mode "during the tax year or before the due date specified in section 263(1)". Udhaar collected by UPI after 31 March but before the return due date therefore still gets 6%. Every ₹1 lakh that moves from cash to UPI lowers the deemed profit by ₹2,000.

The ₹6,00,000 is added to your other income and taxed at the slab rates of the regime you choose. Section 58(2) also says the income is the presumptive figure or the profit actually earned, whichever is higher. If your real margin is above 6–8%, declare the real figure.

What you cannot claim under section 58

• No expenses or losses. Section 58(4): "Any loss, allowance or deduction allowable under the provisions of this Act, shall not be allowed against the income computed" under the scheme. Shop rent, staff salaries, electricity and interest are all treated as already covered by the 6% or 8%.
• Depreciation is deemed taken. Under section 58(6), the written-down value of your shop assets is worked out as if depreciation had been claimed every year.
• No deduction for partners. For a firm under serial number 1, salary and interest paid to partners are not deducted from the 6%/8% figure. Section 58(5) allows that only for the goods-carriage scheme.

If your real profit is below 6% or 8%

A thin-margin shop, such as one selling grocery staples or mobile phones, may earn less than 6–8% of turnover. You can declare the lower figure. But under section 58(3), if your total income is above the amount not chargeable to tax, you must then keep books of account (section 62) and have them audited (section 63).

The lock-in matters too. Under section 58(7), if you declare profit under the scheme for a year and then declare it some other way in any of the next five tax years, you cannot use the scheme for the five tax years after that. Section 58(8) adds that books and an audit are required during that period if your income is above the exemption limit.

So decide with your CA before you move in or out, not at the last minute in July.

Advance tax: one payment by 15 March

Advance tax is due when your tax for the year is ₹10,000 or more (section 404). Other taxpayers pay in four instalments. A shop declaring profit under section 58 pays "the whole amount of advance tax" on or before 15 March (section 408(2)). Any amount paid by 31 March still counts as advance tax for that financial year (section 408(3)). Paying late or short attracts interest, so put 15 March in your calendar.

GST is a separate question

Many owners mix up the two taxes. Presumptive taxation is about income tax on your profit. GST registration depends on turnover: for a shop selling only goods, ₹40 lakh a year in most states (CGST Act, section 22 read with Notification 10/2019-Central Tax). See GST registration limit for shops for the full rules.

The composition limits and rates are in GST composition scheme for small retailers (law: CGST Act, section 10).

Records to keep even under the scheme

"No books" does not mean "no records". Keep:

• Every bill and a daily sales total. Turnover is the base of the whole calculation, and GST law needs invoices anyway.
• The cash versus digital split. It decides the 6%/8% split and the 5% cash test for the ₹3 crore limit.
• Bank and UPI statements that match your digital sales.
• Purchase bills, for GST input credit and to show where the stock came from.
• Cash receipts within legal limits. Taking ₹2 lakh or more in cash from one customer is a separate problem. See cash transaction limits for shops.

Getting the numbers from your billing software

If every sale goes through billing software, the 6%/8% split is a report, not a guess. In RichPOS, the Sales Payments report can be filtered by payment type (cash, UPI, card) and by date range, and exported to Excel for your CA. The Profit & Loss report shows your actual margin, so you can see whether 6–8% is above or below what you really earn. How to read it: profit and loss report for retail shops. RichPOS does not file your income tax return; it gives you and your CA clean numbers.

RichPOS is free for 30 days, then ₹99/month for the first 3 months and ₹199/month after that. See pricing.

This guide explains sections 58, 404 and 408 of the Income-tax Act, 2025 as published by the Income Tax Department, checked on 21 October 2026. It is general information, not tax advice. Your facts, such as commission income, other businesses or the regime you choose, can change the answer. Confirm with a qualified CA.