Skip to main content
LIQUETAX

LIQUETAX Editorial · Educational guide for Indian businesses and taxpayers

Traders: Tax Planning Through Better Business Records

Review sales, stock, gross margins, expenses and payment evidence so a trading business can calculate tax from reliable records.

What this guide covers
  1. Choose the correct income period
  2. Reconcile sales beyond the bank deposits
  3. Review stock and purchase cut-offs
  4. Classify expenses, assets and personal withdrawals

For a trading business, apparent tax savings can disappear when purchases, stock or sales were recorded incorrectly. Review the movement of goods and money before selecting a computation method or claiming deductions. This guide focuses on the evidence behind a trader’s profit, including returns, discounts, platform deductions and owner withdrawals.

Choose the correct income period

For income earned from 1 April 2025 to 31 March 2026, select Assessment Year (AY) 2026-27 and apply the Income-tax Act, 1961. Income earned from 1 April 2026 belongs to Tax Year 2026-27 under the Income-tax Act, 2025. These are different periods. A return or notice about an earlier year does not move to the new Act merely because you handle it after April 2026.

Reconcile sales beyond the bank deposits

Start with invoices and sales registers, then explain cash collections, credit sales, customer advances, returns and discounts. Bank deposits may include loans or owner capital, while sales through marketplaces can arrive net of fees and withholding. Record gross transactions and reconcile the deductions separately. Compare relevant GST records without assuming every timing difference means either hidden income or a harmless error.

Review stock and purchase cut-offs

Reconcile opening stock, purchases, goods returned, transfers, losses and closing stock. Check goods in transit and ownership at the reporting date rather than relying only on physical location. Keep purchase invoices and supplier statements, and investigate negative stock or unexplained gross-margin changes. Inventory treatment affects profit; simply treating every payment to a supplier as an immediate expense can produce an inaccurate result.

Classify expenses, assets and personal withdrawals

Delivery, rent, employee costs and platform charges need a business purpose and evidence. Equipment and other capital purchases may follow asset and depreciation rules. Household expenses and owner drawings do not become trading expenses because they were paid from the business account. Record mixed use and related-party transactions carefully so that the accounts show the real commercial position before tax adjustments.

Choose the tax computation from verified facts

For AY 2026-27, section 44AD eligibility depends on taxpayer type, business activity, turnover and other conditions. The higher ₹3 crore threshold requires the qualifying cash-receipt condition. Agency, commission and other excluded activities need separate consideration. Ordinary computation, presumptive rules and tax-audit tests should be assessed independently; a low bank balance or small shop does not establish eligibility for a particular scheme.

Turn the reconciliation into ongoing controls

Keep a monthly exception list for missing invoices, unreconciled marketplace deductions, overdue suppliers and unexplained stock adjustments. Track advance tax and applicable withholding and GST duties separately. For FY 2026-27 planning, use the Income-tax Act 2025 framework and corresponding current provisions rather than automatically carrying forward old section labels. Retain a clear explanation of differences between accounts and the tax computation.

Practical checklist

  • Reconcile invoice sales, cash, credit balances and net platform settlements.
  • Support closing stock and investigate material gross-margin changes.
  • Separate ordinary expenses, capital assets and personal withdrawals.
  • Verify computation-method and audit eligibility from actual records.
  • Close unresolved items monthly and preserve the tax-adjustment working paper.

Worked example

Illustration: a retailer receives ₹95,000 from a marketplace after fees and tax deductions relating to ₹1 lakh of sales. Posting only ₹95,000 as turnover can hide the actual sales and deductions. The retailer records the full sales, identifies genuine platform charges and verifies the tax credit separately. The tax result then follows the correct computation method and evidence rather than treating the net bank receipt as the whole transaction.

Frequently asked questions

Are net marketplace settlements the same as sales?

Not necessarily. Reconcile gross sales, refunds, platform fees and withholding before deciding turnover.

Can stock purchases always be deducted immediately?

Inventory and cut-off treatment affect profit. Review purchases and closing stock under the applicable accounting and tax rules.

Does a small shop automatically qualify for 44AD?

No. Taxpayer type, activity, turnover and all other eligibility conditions matter.

Can household spending reduce trading profit?

Personal withdrawals and expenses are not ordinary business deductions merely because the business account paid them.

Why compare GST and income-tax records?

They can reveal unexplained differences. Reconcile the underlying facts while recognising that the laws and timing can differ.

Official references

For help reviewing your documents and the correct next step, contact LIQUETAX. The scope and any professional fee should be agreed in writing after the facts are checked. This article provides general information; individual eligibility depends on the applicable law and records.