- Original purpose: simplified presumptive income for eligible retail traders.
- Historical deemed profit: 5% of retail turnover, or a higher amount declared.
- Historical turnover ceiling: Rs. 40 lakh per previous year.
- Last relevant assessment year: AY 2010-11, subject to the provision's historical operation.
- Current relevance: historical assessments, litigation, and understanding the evolution of small-business taxation.
What was Section 44AF?
Section 44AF of the Income-tax Act, 1961 was a special method for computing profits and gains from retail trade in goods or merchandise. Rather than calculate taxable business profits from every ordinary expense and deduction, an eligible retailer could generally use a prescribed percentage of turnover. The original page records its insertion by Act 26 of 1997, section 14, effective 1 April 1998; that historical reference is retained below.
It was not a separate tax rate: the deemed amount was business income, subsequently considered under the income-tax computation applicable to the taxpayer.
Section 44AF explained subsection by subsection
Section 44AF(1): Deemed income of 5%
For an assessee carrying on retail trade in goods or merchandise, the provision deemed profits to be 5% of total turnover, or a higher amount declared in the return. It did not apply where turnover exceeded Rs. 40 lakh in that previous year.
Section 44AF(2): Business deductions
Deductions ordinarily covered by sections 30 to 38 were treated as already allowed in arriving at presumptive income, so they could not be deducted again. For a firm, partner salary and interest could be deducted subject to the conditions and limits under section 40(b).
Section 44AF(3): Depreciation and written-down value
The written-down value of relevant business assets was calculated as though allowable depreciation had been claimed and allowed in each relevant year. This prevented a second depreciation benefit.
Section 44AF(4): Books and audit relief
For the qualifying retail business, the recordkeeping and tax-audit provisions in sections 44AA and 44AB did not apply in the manner described by the subsection. The specified retail turnover or income was excluded when applying those sections' monetary limits, subject to the historical law.
Section 44AF(5): Claiming lower profits
A taxpayer claiming profits below the 5% presumptive figure could do so by maintaining books and documents as required under section 44AA(2) and obtaining and furnishing a tax-audit report under section 44AB.
Section 44AF(6): End of applicability
This subsection expressly removed Section 44AF's application for assessment years beginning on or after 1 April 2011. Accordingly, the provision cannot be elected for AY 2011-12 or any subsequent assessment year.
Historical example: calculating presumptive income
| Particulars | Amount |
|---|---|
| Retail turnover in a qualifying historical year | Rs. 30,00,000 |
| Presumptive percentage under old Section 44AF | 5% |
| Deemed business profit | Rs. 1,50,000 |
| Higher income voluntarily declared, if any | That higher amount applied |
Illustration only. It does not establish current eligibility or current income-tax liability.
What replaced Section 44AF?
The broadened Section 44AD framework under the Income-tax Act, 1961 covered eligible small businesses from AY 2011-12, subject to eligibility, exclusions and thresholds that changed over time. Section 44AD is not an automatic replacement for every retailer: its conditions must be checked for the relevant year.
The Income-tax Act, 2025 commenced on 1 April 2026. For tax years governed by that Act, consult its enacted presumptive-income provisions and current guidance rather than applying the repealed Section 44AF or assuming the old numbering continues.
Related rules and definitions
- Previous year: the financial period in which the relevant income was earned under the 1961 Act.
- Assessment year: the year following the previous year in which income was assessed under that Act.
- Retail trade: sale of goods or merchandise to consumers; the historical rule was confined to qualifying retail business.
- Section 44AA: books-of-account requirements for specified persons and businesses.
- Section 44AB: tax-audit requirements for specified business and professional taxpayers.
- Section 40(b): restrictions on deduction of remuneration and interest paid by a firm to its partners.
Official legal and tax resources
Check the authoritative legislation and relevant amendments through the India Code legislation portal, the Income Tax Department, and the Income Tax e-Filing portal. These official resources are reference links, not site navigation items.
Frequently asked questions
Is Section 44AF still applicable?
No. Section 44AF(6) excludes assessment years beginning on or after 1 April 2011. It remains relevant to older assessment years and historical disputes.
What was the presumptive tax rate under Section 44AF?
Generally 5% of turnover, or a higher amount declared by the taxpayer, for qualifying retail trade.
What was the turnover limit under Section 44AF?
The provision did not apply if turnover exceeded Rs. 40 lakh in the relevant previous year.
What provision replaced Section 44AF for eligible small businesses?
The expanded Section 44AD framework applied from assessment year 2011-12 under the 1961 Act, subject to eligibility and conditions. For tax years under the Income-tax Act, 2025, consult the applicable new Act.
Read the original Section 44AF extract and historical amendment notes
Archived text reproduced from the earlier webpage for historical reference; consult official legislation for authoritative wording.
1(1) Notwithstanding anything to the contrary contained in sections 28 to 43C,in the case of an assessee engaged in retail trade in any goods or merchandise, a sum equal to five per cent of the total turnover in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum as declared by the assessee in his return of income shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession":
Provided that nothing contained in this sub-section shall apply in respect of an assessee whose total turnover exceeds an amount of forty lakh rupees in the previous year.
(2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed:
Provided that where the assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under sub-section (1) subject to the conditions and limits specified in clause (b) of section 40.
(3) The written down value of any asset used for the purpose of the business referred to in sub-section (1) shall be deemed to have been calculated as if the assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years.
(4) The provisions of sections 44AA and 44AB shall not apply in so far as they relate to the business referred to in sub-section (1) and in computing the monetary limits under those sections, the total turnover or, as the case may be, the income from the said business shall be excluded.
2 (5) Notwithstanding anything contained in the foregoing provisions of this section, an assessee may claim lower profits and gains than the profits and gains specified in sub-section (1), if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB.
3 (6) Nothing contained in this section shall apply to any assessment year
beginning on or after the 1st day of April, 2011.
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1. Ins. by Act 26 of 1997, s. 14 (w.e.f. 1-4-1998).
2. Ins. by Act 27 of 1999, s. 31 (w.e.f. 1-4-1998).
3. Ins. by Act 33 of 2009, s. 22 (w.e.f. 1-4-2009).
Updated: 25 October 2026. This is general legal information, not a substitute for advice based on the relevant tax year and facts.