Tax for retail and wholesale traders in India

Trading in goods is a business on Section 44AD (6% digital, 8% other), and its compliance is set by four turnover thresholds: Rs 40 lakh (GST registration), Rs 1.5 crore (composition exit, 1% for traders), Rs 2 to 3 crore (44AD presumptive limit), and Rs 10 crore (194Q purchase TDS at 0.1%). Inventory is valued at the lower of cost or net realisable value under ICDS-II (no LIFO). Online sellers cannot use the composition scheme, must register regardless of turnover, and have 0.1% income-tax TDS deducted by the platform under Section 194O. The old seller-side goods TCS under Section 206C(1H) no longer applies from 1 April 2025.

Presumptive + GST + TDS at a glance

Presumptive taxation

Section:: Sec 44AD
Deemed profit rate:: 6% on digital receipts / 8% on other receipts
Classification:: business

GST treatment

Slab:: 18%
SAC:: goods at applicable HSN rate (commonly 5% or 18%); composition 1% for traders below Rs 1.5 crore (not for online sellers)
Composition eligible:: Yes
Reverse charge (RCM):: Not applicable

TDS exposure

Last reviewed: 29 May 2026

Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact Income Tax Department. Read our editorial scope →

Trading in goods is a business under Section 44AD, and its tax life is governed by a ladder of turnover thresholds: Rs 40 lakh for GST registration (Rs 20 lakh for any services), Rs 1.5 crore for the composition exit, Rs 2 crore (or Rs 3 crore where cash is 5% or less) for the 44AD presumptive limit, and Rs 10 crore for TDS on purchases under Section 194Q. On top of the ladder, inventory must be valued at cost or net realisable value (whichever is lower) under ICDS-II, and selling online carries a specific quirk: marketplace sellers cannot use the composition scheme and must register regardless of turnover.

What business structure do retail and wholesale traders use?

The common patterns for retail and wholesale traders are: Sole proprietor, simplest, suits most small shops and kirana stores on 44AD, Partnership or LLP, for co-owned trading firms, Private limited, for a scaling distribution or retail-chain business. The right structure depends on revenue, liability exposure, and personal circumstances, covered below.

The four-number threshold ladder

A trader's compliance is set by four turnover thresholds. At Rs 40 lakh (goods) you must register for GST. Up to Rs 1.5 crore you can use the composition scheme (1% for traders, no input credit, bill of supply). Up to Rs 2 crore, or Rs 3 crore where cash receipts are 5% or less, you can use 44AD presumptive at 6 or 8%. At Rs 10 crore your purchases come into Section 194Q (you deduct 0.1% TDS on purchases over Rs 50 lakh from a supplier). Knowing which rung you are on tells you exactly which rules apply to your shop.

GST registration at Rs 40 lakh goods, composition up to Rs 1.5 crore, 44AD up to Rs 2 crore (Rs 3 crore if cash 5% or less), 194Q purchase-TDS above Rs 10 crore turnover. (CGST Act 2017 s.22 (registration) + s.10 (composition); Income-tax Act 1961 s.44AD (Income-tax Act 2025 s.58) + s.194Q (Income-tax Act 2025 s.393))

Inventory valuation: ICDS-II and Section 145A

Stock must be valued at the lower of cost or net realisable value under ICDS-II. You can use FIFO, weighted-average or specific identification, but LIFO is not allowed for tax. Under Section 145A you include taxes and duties that bring the goods to their location and condition: GST that you have claimed as input credit is not added to cost, but blocked or unavailed GST becomes part of cost. Closing stock valuation is a routine scrutiny point, so value consistently and document the method.

Inventory is valued at the lower of cost or net realisable value (ICDS-II); LIFO is not allowed; creditable GST is excluded from cost while blocked GST is added (Section 145A). (ICDS-II (valuation of inventories) + Income-tax Act 1961 s.145A (inclusive method))

Purchase TDS (194Q) and the e-commerce quirk

If your turnover exceeded Rs 10 crore last year, you deduct 0.1% TDS under Section 194Q on purchases over Rs 50 lakh from a supplier. Note the old seller-side goods TCS under Section 206C(1H) no longer applies from 1 April 2025, so 194Q stands alone, ignore older content describing the 194Q-versus-206C(1H) interplay. For online sellers there is a separate quirk: a marketplace seller cannot use the composition scheme and must register regardless of turnover, and the platform deducts 0.1% income-tax TDS under Section 194O on gross sales (with a small-seller exemption for individuals supplying intra-state up to Rs 5 lakh a year with PAN/Aadhaar).

Buyers over Rs 10 crore turnover deduct 0.1% under 194Q on large purchases; seller-side 206C(1H) goods TCS ended on 1 April 2025; online sellers cannot use composition and face 0.1% 194O on sales. (Income-tax Act 1961 s.194Q (purchase TDS) + s.194O (e-commerce, 0.1% from 1 Oct 2024) (Income-tax Act 2025 s.393); s.206C(1H) inapplicable from 1 April 2025)

Allowable expenses

Category	Examples	Tax treatment
Cost of goods	Stock purchases, freight inward, packaging	Cost of sale; GST input credit if regular-scheme registered
Shop and storage	Shop rent, godown, electricity, fittings	Deductible if keeping books; in deemed profit under 44AD
Staff	Salaries, wages	Deductible if keeping books; pay over Rs 10,000/day by bank (40A(3))
Selling	Marketplace fees, delivery, advertising	Deductible business expense
Admin	Accounting, GST filing, billing software, phone	Deductible (apportion personal use)

Vehicle and travel costs

A delivery or stock vehicle is deductible under regular books (running costs and depreciation), or treated as included in the deemed profit under Section 44AD. Generate e-way bills for stock movements over Rs 50,000.

Capital allowances and equipment

On regular books, shop fittings, refrigeration and computers depreciate (computers generally 40% WDV, furniture/equipment 15%). Under Section 44AD no separate depreciation is claimed, but keep invoices for the written-down value on any later sale.

Worked example

Anand — Indore, MP

kirana shop owner (B2C retail) (2026-27)

Annual turnover Rs 60 lakh, all intra-state, mostly digital receipts. No online selling, well below Rs 10 crore.

He has crossed Rs 40 lakh so must register for GST; below Rs 1.5 crore he can choose the composition scheme (1%, no input credit, simple quarterly filing) or the regular scheme. For income tax, on the 44AD route his deemed profit is 6% of Rs 60 lakh (digital receipts) = Rs 3,60,000, near the Rs 4 lakh new-regime exemption, so little or no tax. He is below Rs 10 crore, so no 194Q, and he does not sell online, so no 194O. His tax life sits entirely on the lowest rungs of the ladder.

Common audit triggers for retail and wholesale traders

Crossing Rs 40 lakh turnover without GST registration
Using the composition scheme while selling through a marketplace (not allowed)
Cash receipts over 5% of turnover while using the Rs 3 crore 44AD limit
Inconsistent or LIFO-based closing-stock valuation
194O platform-reported sales not matching declared turnover
Not deducting 194Q where turnover exceeded Rs 10 crore

Frequently asked questions

What are the key tax thresholds for a trading business?+

Four: Rs 40 lakh (GST registration for goods), Rs 1.5 crore (composition scheme exit, 1% for traders), Rs 2 crore or Rs 3 crore where cash is 5% or less (44AD presumptive limit), and Rs 10 crore (Section 194Q TDS on purchases over Rs 50 lakh). Knowing which rung your turnover sits on tells you which rules apply.

Can I use the composition scheme if I sell on Amazon or Flipkart?+

No. A seller supplying through an e-commerce operator cannot use the composition scheme and must register for GST regardless of turnover, especially for inter-state sales. The platform also deducts 0.1% income-tax TDS under Section 194O on your gross sales, which you reclaim against your tax. Reconcile the platform statements to your turnover.

How do I value my closing stock for tax?+

At the lower of cost or net realisable value under ICDS-II, using FIFO, weighted-average or specific identification, LIFO is not allowed. Under Section 145A, GST you have claimed as input credit is not added to cost, but blocked or unavailed GST is. Value consistently year to year, as stock valuation is a common scrutiny point.

Do I need to deduct TDS on my purchases?+

Only if your turnover exceeded Rs 10 crore in the preceding year, in which case Section 194Q makes you deduct 0.1% on purchases over Rs 50 lakh from a supplier. The old seller-side goods TCS under Section 206C(1H) ended on 1 April 2025, so 194Q now stands alone, with no overlapping seller-side collection.

Last reviewed: 29 May 2026