As a follow up to its November 8 decision to demonetise high value currency, the government on Monday said small traders and businesses with a turnover of up to Rs. 2 crores will pay less tax if they accept payments through banking and digital means.
“It has been decided to reduce the existing rate of deemed profit of 8 percent under section 44AD of the (Income Tax) Act to 6 percent in respect of the amount of total turnover or gross receipts received through banking channel/digital means for the financial year 2016-17,” the Union Finance Ministry said.
Under the existing provision in case of certain assessees – an individual, Hindu Undivided Family (HUF), or a partnership firm other than a limited liability partnership – having a turnover of Rs. 2 crores or less, the profit calculation for taxation purposes is deemed to be 8 percent of the total turnover, the Ministry said in a release.
The Central Board of Direct Taxes has taken this decision to aid the government’s mission of moving towards a less cash economy and to incentivise small businesses to proactively accept payments by digital means, the statement said.
“However, the existing rate of deemed profit of 8 percent referred to in section 44AD of the Act, shall continue to apply in respect of total turnover or gross receipts received in cash,” it added.
The Ministry said the legislative amendments in this regard would be carried out through the Finance Bill, 2017.