Now receive payments through banks or digital means to pay lower Income Tax

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Now receive payments through banks or digital means to pay lower Income Tax. Under the existing provisions of section 44AD of the Income-tax Act, 1961 (the Act), in case of certain assesses (i.e. an individual, HUF or a partnership firm other than LLP) carrying on any business (other than transportation, agency, brokerage and commission) and having a turnover of Rupees Two Crore or less, the profit is deemed to be 8% of the total turnover.

This is a presumptive taxation provision for ease of compliance for small traders other than Company/LLP assesses having turnover of less than Rs. 2 Crore. Assesses filing return of income under this provision of the act are neither required to maintain books of accounts nor are they subjected to tax audit. They are even exempted from the burden of substantiating the business expenses with supporting documents. If they declare their profit at 8% or higher of the total turnover, under section 44AD, the same shall be acceptable to the tax department.

In order to achieve the Government’s mission of moving towards a less cash economy and to incentivize small traders / businesses to proactively accept payments by digital means, it has been decided by the government to reduce the existing rate of deemed profit of 8% under section 44AD of the Act to 6% in respect of the amount of total turnover or gross receipts received through banking channel / digital means for the financial year 2016-17.

However, the existing rate of deemed profit of 8% referred to in section 44AD of the Act, shall continue to apply in respect of total turnover or gross receipts received in cash. This was announced by way of a press release dated 19th December, 2016. As per the press release the legislative amendment in this regard shall be carried out by the Government through the Finance Bill, 2017.

We will have to analyze the legislative amendment to comment on the nitty-gritties of the amendment.

Author: Rahul Agarwalla

A Chartered Accountant with 9 years of experience in litigation, consultancy and compliance in Income Tax laws, Service Tax and other tax and Corporate Laws.

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