Govt gives tax break to small businesses on digital receipts of money

Businesses with turnover up to Rs 2 crore will have to pay less tax on electronic payment
receipts as compared to on receipts/payments received in cash.
For businesses with turnover up to Rs 2 crore, it has been decided to reduce the existing
rate of deemed profit of 8% under section 44AD of the Income Tax 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, according to a press release from the Central Board of Direct Taxes here today.

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, the
release clarifies.

Under the existing provisions of section 44AD of the Incometax 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% of the total turnover. This step is being taken to encourage these businesses to move towards a less cash economy and to incentivise small traders / businesses to proactively accept payments by digital means.
Legislative amendment for this will be done via the Finance Bill, 2017, the release adds.
Welcoming the step, it is of the view that this would encourage tax payers ( with
turnover or gross receipts up to Rs 2 crore)to be more receptive to digital payments.

However, they would need to ensure meticulous maintenance of records of turnover to distinguish digital wallet / banking receipts and cash.
Assuming a small business gets Rs 1.5 crore of its turnover from digital payments and the balance Rs 0.5 crore turnover as cash receipts then it would save about Rs 92,700 in tax once this change is implemented. Refer table below for the working.

All figures in INR
Particulars Gross Receipts Proposed Income @ 6% Deemed Profit for Digital Receipts & 8% Deemed Profits for Cash Receipts Existing Income @ 8% Deemed Profits
Banking / Digital Payments     15,00,000.00                              9,00,000.00     12,00,000.00
Cash       5,00,000.00                              4,00,000.00       4,00,000.00
Total     20,00,000.00                           13,00,000.00     16,00,000.00
Tax @ 30.9%                              4,01,700.00       4,94,400.00
Incremental Tax Savings           92,700.00


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