Looking for expert help with income tax for shopkeepers and kirana store owners India? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.
Who is this guide for? If you own a kirana store, general store, grocery shop, stationery shop, hardware store, cloth shop, mobile accessories shop, or any retail business in India, this guide covers your complete income tax obligations for AY 2026-27 (FY 2025-26): income classification, Section 44AD presumptive taxation, business code 02002, GST registration and the Composition Scheme, TDS, deductible business expenses, ITR-4 filing, and advance tax.
India has over 12 million kirana stores and an estimated 80 million retail establishments. Kirana stores alone account for nearly 80% of India's retail trade. Most of these shops operate as sole proprietorships with annual turnover between Rs 10 lakh and Rs 2 crore. Despite this scale, the tax filing process for shopkeepers is straightforward once you understand three things: Section 44AD presumptive taxation, GST Composition Scheme, and the correct ITR form.
This guide covers every tax obligation a shopkeeper faces. If you run a related business, see also our guides for restaurant and cafe owners, caterers and food truck operators, and the business structure comparison for proprietorship vs partnership vs LLP vs company.
How Shopkeepers Earn Income
Retail shop income comes from multiple channels, often within the same business:
Tax Rate Chart
Common Revenue Streams for Retail Shops
Typical ranges; actual varies by location, product mix, and customer base
Counter Sales (Walk-in Customers)
Daily sales of groceries, FMCG, household items; mix of cash and UPI
Credit Sales (Udhar / Khata)
Monthly credit to regular customers, settled on salary day; common in neighbourhood stores
Wholesale or Bulk Orders
Supply to hotels, hostels, offices, or smaller shops; higher volume, lower margins
Home Delivery Orders
Phone or WhatsApp orders; growing in metros; may use Swiggy Instamart or Dunzo
Commission Income
Mobile recharges, bill payments, DTH, money transfer; commission from service providers
Source: Industry estimates based on CAIT data and Tax Garden client filings (FY 2025-26)
A small neighbourhood kirana store in a tier 2 or tier 3 city earns Rs 10 lakh to Rs 40 lakh per year. A mid-size grocery store in a metro city earns Rs 40 lakh to Rs 1.5 crore. A general store with wholesale supply earns Rs 1 crore to Rs 3 crore. Specialised retail (hardware, cloth, electronics) varies widely by product category and location.
The key tax question for every shopkeeper is the same: what percentage of this turnover is my taxable profit?
Income Classification: Business Income
Shopkeeper income is classified as Profits and Gains of Business or Profession (Section 28 of the Income Tax Act, 1961). Running a retail shop is a business activity. It is not a "specified profession" under Section 44AA.
You use Section 44AD (Section 58 under ITA 2025), not Section 44ADA. Section 44ADA is exclusively for specified professionals (doctors, lawyers, CAs, engineers, architects, and others listed under Section 44AA(1)).
Business code for shopkeepers
Tax Rate Chart
Business Codes for Retail Shops in ITR-4 and ITR-3
Select the code matching your primary activity
02002 - Retail Trade (Others)
Kirana stores, grocery shops, general stores, stationery, hardware, cloth, mobile shops
02001 - Wholesale Trade (Others)
Shops primarily selling in bulk to other retailers or businesses
02003 - Commission or Brokerage in Trade
Agents who sell goods on behalf of manufacturers or distributors for commission
02004 - Retail Trade in Fuel
Petrol pumps, LPG distributors, kerosene dealers
Source: CBDT Business Code List for AY 2026-27
Most kirana stores and general stores use 02002 (Retail Trade - Others). If you run both retail and wholesale operations, use the code matching your primary (higher revenue) activity.
The NIC code for Udyam registration is different: 47111 (retail sale in non-specialised stores with food predominating) for kirana stores, 47190 (other retail sale in non-specialised stores) for general stores, and category-specific codes for specialised shops (47410 for computers, 47711 for clothing, etc.).
Section 44AD Presumptive Taxation for Shopkeepers
This is the single most important section for shopkeeper taxation. Most retail shop owners in India use Section 44AD (now Section 58 under the Income Tax Act 2025).
Tax Rate Chart
Deemed Profit Rates Under Section 44AD / Section 58
Taxable profit is a fixed percentage of turnover: rate depends on how receipts are collected
Digital receipts (UPI, NEFT, RTGS, account-payee cheque, card)
Applied to turnover received through specified banking or online modes
Cash receipts (all other modes)
Applied to turnover received in cash or non-account-payee cheque
Source: Section 58(2), Table Sl. No. 1, Income Tax Act 2025 (previously Section 44AD, IT Act 1961)
Eligibility
- Resident individuals, HUFs, and partnership firms (not LLPs)
- Turnover up to Rs 2 crore (or Rs 3 crore if cash receipts are 5% or less of total receipts)
- Not available if you claimed deductions under Sections 10A, 10AA, 10B, 10BA, or profit-linked deductions under Chapter VI-A (80-IA to 80RRB) in the relevant year
Practical example: Kirana store
Ramesh runs a kirana store in Nagpur. Annual turnover: Rs 75 lakh. He receives Rs 50 lakh through UPI and bank transfers, and Rs 25 lakh in cash.
Presumptive income calculation:
- 6% of Rs 50 lakh (digital) = Rs 3,00,000
- 8% of Rs 25 lakh (cash) = Rs 2,00,000
- Total deemed profit = Rs 5,00,000
Under the new tax regime for FY 2025-26, taxable income up to Rs 12 lakh attracts zero tax (Section 87A rebate of Rs 60,000). Ramesh's deemed profit of Rs 5 lakh falls well within this limit. His income tax liability is zero.
Practical example: Mid-size general store
Priya runs a general store in Hyderabad. Annual turnover: Rs 1.8 crore. She receives Rs 1.5 crore through UPI, cards, and bank transfers, and Rs 30 lakh in cash.
Presumptive income calculation:
- 6% of Rs 1.5 crore (digital) = Rs 9,00,000
- 8% of Rs 30 lakh (cash) = Rs 2,40,000
- Total deemed profit = Rs 11,40,000
Under the new tax regime, income up to Rs 12 lakh is tax-free (87A rebate). Priya's Rs 11.4 lakh deemed profit results in zero income tax.
Why most shopkeepers pay zero income tax
The combination of Section 44AD's low deemed profit rates and the Rs 12 lakh rebate threshold under the new regime means a shopkeeper needs turnover above approximately Rs 1.5 crore to Rs 2 crore (depending on the cash-to-digital ratio) before any income tax is actually payable. The majority of kirana stores in India fall below this threshold.
However, filing the ITR is still mandatory if gross total income exceeds Rs 3 lakh (the basic exemption limit under the new regime is Rs 4 lakh from FY 2026-27, but for AY 2026-27 covering FY 2025-26, the threshold is Rs 3 lakh). Even with zero tax, non-filing attracts notices.
When to Opt Out of Section 44AD
Section 44AD is not always the best choice. You should opt out and maintain full books of accounts if:
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Your actual profit margin is below 6%. Many kirana stores operate on 3% to 5% net margins after rent, salaries, electricity, and wastage. If your actual profit is Rs 3 lakh on Rs 1 crore turnover (3%), Section 44AD forces you to declare Rs 7 lakh (assuming mixed receipts). Maintaining books lets you declare the actual Rs 3 lakh.
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You have carried-forward losses (business loss or capital loss) that you want to set off against current income. Losses cannot be set off against presumptive income.
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Your turnover exceeds Rs 2 crore (or Rs 3 crore for digital-heavy businesses). You must maintain books and file ITR-3.
The five-year lock-in trap
If you opt for Section 44AD and then opt out in any subsequent year, you cannot use Section 44AD for the next five assessment years. This is the most common mistake shopkeepers make. If you opt for 44AD in AY 2025-26 and then opt out in AY 2026-27, you are locked out until AY 2032-33.
Plan your choice carefully. If your margins are consistently thin, start with actual books from the beginning.
Tax audit implications
If you opt out of Section 44AD and your taxable income exceeds the basic exemption limit, you must get a tax audit under Section 44AB (Section 63, ITA 2025). The audit threshold for regular businesses is:
- Turnover up to Rs 1 crore: audit required only if presumptive income is declared below 6%/8% and income exceeds basic exemption limit
- Turnover Rs 1 crore to Rs 10 crore: audit required if cash receipts and payments each exceed 5% of total
- Turnover above Rs 10 crore: audit always required
GST for Shopkeepers
GST registration threshold
Tax Rate Chart
GST Registration Thresholds for Retail Shops
Mandatory registration once turnover exceeds the threshold
Goods (Normal States)
Applicable to most kirana stores and retail shops across India
Goods (Special Category States)
Assam, Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Uttarakhand, Himachal Pradesh
Services
For commission income, mobile recharge services, and other service components
Source: CGST Act Section 22, Notification 10/2019-Central Tax
A kirana store selling only goods needs GST registration once annual turnover crosses Rs 40 lakh. Below this, GST registration is optional.
GST Composition Scheme: The shopkeeper's best friend
Most small and mid-size retail shops opt for the GST Composition Scheme. The economics are compelling:
Tax Rate Chart
GST Composition Scheme vs Regular GST for Traders
Comparison for a kirana store with Rs 80 lakh annual turnover
Composition Scheme
0.5% CGST + 0.5% SGST; no input tax credit; quarterly CMP-08 + annual GSTR-4
Regular GST
Full ITC available; monthly GSTR-1 + GSTR-3B; more complex compliance
Source: Section 10, CGST Act 2017
Composition Scheme eligibility:
- Annual turnover up to Rs 1.5 crore (Rs 75 lakh in special category states)
- Cannot make interstate sales (all sales must be within the same state)
- Cannot supply goods through e-commerce operators (Swiggy Instamart, Amazon, Flipkart)
- Cannot issue tax invoices (issue bills of supply instead)
- No input tax credit available
For a kirana store with Rs 80 lakh turnover:
- Composition tax = 1% of Rs 80 lakh = Rs 80,000 per year
- Regular GST = complex calculation across hundreds of products at 0%, 5%, 12%, and 18% rates, offset by ITC on purchases
For most small retailers, the simplicity of paying a flat 1% far outweighs the potential ITC benefit of regular GST. The compliance burden drops from monthly GSTR-1 and GSTR-3B to quarterly CMP-08 and annual GSTR-4.
When regular GST makes more sense
Opt for regular GST registration instead of composition if:
- You make interstate purchases or sales
- You sell through Amazon, Flipkart, or other e-commerce platforms
- Your purchase costs are high relative to margins (ITC recovery exceeds the 1% composition cost)
- You sell to GST-registered businesses that need tax invoices for their ITC claims
- Your turnover exceeds Rs 1.5 crore
GST rates on common retail products
Kirana stores sell products across multiple GST slabs:
Tax Rate Chart
GST Rates on Common Kirana Store Products (Post GST 2.0)
Rates effective from September 22, 2025 under GST 2.0 simplified structure
0% GST (Exempt)
Unbranded rice, wheat, atta, pulses, fresh milk, fresh vegetables, fruits, eggs, curd, lassi, unbranded salt
5% GST
Branded packaged atta, sugar, tea, coffee, spices, edible oils, branded paneer, bread, packaged drinking water
12% GST
Ghee, butter, fruit juices, namkeen, pickles, sauces, jams, processed cheese
18% GST
Soaps, shampoos, detergents, toothpaste, biscuits (branded), chocolates, ice cream, hair oil, cosmetics
Source: GST Rate Schedule, Notifications under CGST Act 2017, updated post-GST 2.0
Composition dealers do not need to worry about product-wise rates. They pay a flat 1% on total turnover regardless of the GST rate applicable to individual products.
TDS Relevant to Shopkeepers
Most small shopkeepers do not deduct TDS. TDS obligations arise only in specific situations:
TDS you may need to deduct
Section 194-IB: TDS on rent. If you pay monthly rent of Rs 50,000 or more for your shop, you must deduct TDS at 5% from the rent and deposit it using Form 26QC. This applies even if you are an individual without a tax audit requirement.
Section 194C: TDS on contractor payments. If your business is covered under tax audit (turnover above Rs 1 crore with high cash ratio, or opted out of 44AD), you must deduct TDS at 1% (individual) or 2% (firm/company) on payments to contractors (transport, labour, maintenance) exceeding Rs 30,000 in a single payment or Rs 1 lakh in aggregate during the year.
TDS deducted on your income
Section 194-O: E-commerce TDS. If you sell through Amazon, Flipkart, or other e-commerce platforms, the platform deducts TDS at 0.1% on gross sales exceeding Rs 5 lakh per year.
Section 194H: Commission TDS. If you receive commission income (mobile recharges, bill payments), the principal company deducts TDS at 5% on commission above Rs 15,000 per year.
Check your TDS rate chart to verify current rates and thresholds for all sections.
Business Expenses and Deductions
If you opt out of Section 44AD and maintain books of accounts, you can claim actual business expenses:
Common deductible expenses for shopkeepers
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Shop rent: The single largest expense for most retail shops. Fully deductible. Keep rent receipts and landlord PAN details.
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Staff salaries and wages: Salaries paid to shop assistants, delivery boys, billing operators. Keep salary registers and payment records.
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Electricity and utilities: Shop electricity bill, water bill. Keep bills in the shop name.
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Purchase of inventory: Cost of goods purchased for resale. This is your largest cost and is accounted for through opening stock, purchases, and closing stock.
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Transport and freight: Cost of transporting goods from wholesalers or distributors to your shop.
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Packaging materials: Bags, boxes, wrapping material used for customer orders.
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Insurance: Shop insurance, stock insurance, fire insurance premiums.
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Depreciation: On shop fittings, shelving, refrigerators, weighing scales, billing machines, CCTV cameras. Written down value method at 15% (general plant and machinery) or 40% (computers and billing machines).
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Interest on business loans: Fully deductible if the loan is used for business purposes (inventory purchase, shop renovation, equipment).
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Repairs and maintenance: Shop painting, plumbing, electrical repairs, equipment servicing.
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Digital payment charges: MDR on card payments, POS machine rental. Note: UPI transactions have zero MDR for most merchants.
Expenses NOT deductible
- Personal and household expenses
- Cash payments above Rs 10,000 to a single person in a single day (Section 40A(3))
- Expenses without proper bills or receipts
- Capital expenditure (treated as assets, depreciated over time)
Under Section 44AD, you cannot separately claim any of these deductions. The 6%/8% deemed profit is assumed to be after all expenses. This is precisely why Section 44AD is simpler: no bills, no books, no expense tracking.
ITR Filing for Shopkeepers
Which ITR form?
Tax Rate Chart
ITR Form Selection for Shopkeepers
Choose based on income type, turnover, and taxation scheme
ITR-4 (Sugam)
Section 44AD presumptive, total income up to Rs 50 lakh, no capital gains, no foreign assets
ITR-3
Opted out of 44AD, turnover above Rs 2-3 crore, or income above Rs 50 lakh
ITR-5
Partnership firms and LLPs operating retail businesses
Source: CBDT ITR Form Notification for AY 2026-27
ITR-4 is the default for most shopkeepers. If you use Section 44AD and your total income (including all sources) is below Rs 50 lakh, file ITR-4. It is a four-page form that takes 15 minutes to fill.
ITR-4 is NOT applicable if:
- You have capital gains income (sold property, shares, or mutual funds)
- You have income from more than one house property
- You have foreign assets or foreign income
- Total income exceeds Rs 50 lakh
In these cases, file ITR-3.
Filing deadlines
- July 31: Due date for shopkeepers not requiring tax audit (most sole proprietorships under Section 44AD)
- October 31: Due date for shopkeepers requiring tax audit (turnover above Rs 1 crore with high cash, or opted out of 44AD with income above exemption limit)
- December 31: Belated return deadline (with Rs 5,000 late fee under Section 234F, reduced to Rs 1,000 if income is below Rs 5 lakh)
Advance Tax for Shopkeepers
Under Section 44AD: One payment, one date
Shopkeepers using Section 44AD have a simplified advance tax schedule:
Pay 100% of your estimated tax liability by March 15 of the financial year. No quarterly installments needed.
For FY 2025-26 (AY 2026-27), the due date was March 15, 2026.
If your presumptive income falls within the Rs 12 lakh rebate threshold (new regime), your advance tax liability is zero. No payment needed.
Under regular taxation (non-44AD)
If you maintain actual books, advance tax is due in four installments:
- June 15: 15% of estimated tax
- September 15: 45% of estimated tax (cumulative)
- December 15: 75% of estimated tax (cumulative)
- March 15: 100% of estimated tax
Missing installment deadlines attracts interest under Section 234C at 1% per month.
Record Keeping Requirements
Under Section 44AD
No books of accounts required. This is the primary benefit. However, you should still maintain:
- Bank statements (for all business accounts)
- UPI transaction records
- GST returns and payment challans
- Rent receipts (if claiming TDS credit on rent deducted)
- Purchase and sale invoices (for GST compliance, if registered)
Outside Section 44AD
Full books of accounts under Section 44AA:
- Cash book and bank book
- Sales register and purchase register
- Stock register (opening stock, purchases, closing stock)
- Expense ledger
- Fixed assets register
These records must be maintained for 8 years from the end of the relevant assessment year (6 years under the new ITA 2025).
E-Invoice and Other Compliance
E-Invoice
E-invoicing is mandatory for businesses with aggregate turnover exceeding Rs 5 crore. Most small and mid-size retail shops fall below this threshold. Composition scheme dealers are exempt from e-invoicing regardless of turnover.
FSSAI (for food retailers)
Kirana stores selling packaged food items generally do not need FSSAI registration because they are retailers, not manufacturers or processors. FSSAI registration is required for food manufacturing, processing, and catering businesses. However, if your shop repackages loose items (dal, rice, spices) into branded packets, FSSAI registration may be required.
Shop and Establishment Act
All retail shops must register under the Shops and Establishment Act of their respective state. This covers working hours, employee rights, and safety standards. Registration is typically done at the municipal or labour commissioner's office.
Udyam Registration
Retail shops with turnover below Rs 5 crore and investment in equipment below Rs 1 crore qualify as micro enterprises under the MSME classification. Udyam registration is free and provides access to government schemes, priority lending, and delayed payment protection.
Common Mistakes Shopkeepers Make
1. Not filing ITR because tax is zero. Even if your income tax liability is nil under Section 87A rebate, you must file an ITR if gross total income exceeds the basic exemption limit. Non-filing triggers scrutiny notices, denies loan eligibility, and blocks visa applications.
2. Mixing personal and business bank accounts. Use a separate current account for all business transactions. Mixed accounts make it impossible to track turnover accurately and create complications during scrutiny.
3. Ignoring the GST threshold. Many shops cross Rs 40 lakh turnover without realising it. Once you cross the threshold, every day of unregistered operation attracts penalty and the obligation to pay GST from the date the threshold was crossed.
4. Choosing Composition Scheme without checking restrictions. If you make even one interstate purchase for resale (not for own use), you cannot be a composition dealer. A shop in Delhi ordering stock from a manufacturer in Gujarat is making an interstate purchase, which is allowed. But a composition dealer in Delhi selling goods to a customer in Noida (Uttar Pradesh) is making an interstate sale, which disqualifies the composition scheme.
5. Not claiming Section 44AD when eligible. Some shopkeepers maintain complex books and pay CAs Rs 10,000 to Rs 25,000 for ITR filing when Section 44AD would let them file ITR-4 themselves in minutes with zero bookkeeping cost.
6. Opting in and out of Section 44AD without understanding the five-year lock-in. One year of opting out locks you out for five years. This decision should be deliberate, not accidental.
7. Cash payments above Rs 10,000. Paying suppliers, contractors, or landlords more than Rs 10,000 in cash in a single day makes the expense non-deductible under Section 40A(3). Always use bank transfer, UPI, or account-payee cheque for large payments.
Tax Planning Checklist for Shopkeepers (AY 2026-27)
- Calculate total annual turnover (all channels: counter, wholesale, online, commission)
- Determine cash vs digital receipt ratio
- If turnover is under Rs 2 crore (Rs 3 crore for mostly digital): opt for Section 44AD
- Calculate deemed profit: 6% of digital + 8% of cash
- Check if deemed profit exceeds Rs 12 lakh (new regime) or your applicable slab
- If zero tax: file ITR-4 by July 31, no advance tax needed
- If tax payable: pay 100% advance tax by March 15
- GST: register if turnover exceeds Rs 40 lakh, opt for Composition at 1% if under Rs 1.5 crore
- Deduct TDS on shop rent if monthly rent exceeds Rs 50,000 (Section 194-IB)
- Keep bank statements and UPI records even under Section 44AD
