India : Govt reduces tax for small traders going digital

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Home / Knowledge / News / Textiles / Govt reduces tax for small traders going digital

Govt reduces tax for small traders going digital

20
Dec '16

In order to incentivise small traders and businesses to proactively accept payments through digital means, the government has decided to reduce the existing rate of deemed profit under section 44AD of the Income Tax Act. This is applicable only for those payments that are accepted through banking channel or digital means for the financial year 2016-17.

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 Rs 2 crore or less, the profit is deemed to be 8 per cent of the total turnover.

“In order to achieve the government’s mission of moving towards a less cash economy and to incentivise small traders and businesses to proactively accept payments by digital means, it has been decided to reduce the existing rate of deemed profit of 8 per cent under section 44AD of the Act to 6 per cent in respect of the amount of total turnover or gross receipts received through banking channel and digital means for the financial year 2016-17,” the Central Board of Direct Taxes (CBDT) said in a statement.

“However, the existing rate of deemed profit of 8 per cent referred to in section 44AD of the Act, shall continue to apply in respect of total turnover or gross receipts received in cash,” the CBDT statement added. “Legislative amendment in this regard shall be carried out through the Finance Bill, 2017.”

Explaining this important change, finance minister Aun Jaitley said, “All small traders, businessmen and workshop owners whose total turnover is less than Rs 2 crore a year may not maintain any books of account and their income was presumed to be 8 per cent of turnover. Now this order has been amended. And to the extent that they deal digitally or through cheques and banking transactions the presumptive income will not be 8 per cent but will be 6 per cent.”

“Therefore the object of this order is that those who deal in digital or through a banking transaction mode their income will be presumed to be 2 per cent less, that is 6 per cent, and accordingly this will constitute a major tax relief to be given to them,” he said. (RKS)

Fibre2Fashion News Desk – India

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