In a bid to promote less cash economy, the government today said small traders and businesses with a turnover of up to Rs 2 crore will pay less tax if they accept payments through banking and digital means.
Under the existing Section 44AD of the Income-Tax Act, 1961, in case of certain assesses (an individual, HUF or a partnership firm other than LLP) carrying on any business having a turnover of Rs 2 crore or less, the profit is deemed to be 8 per cent of the total turnover for taxation.
“…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/digital means for the financial year 2016-17,” the Central Board of Direct Taxes (CBDT) said in a communication.
The decision has been taken to achieve the government’s mission of moving towards a less cash economy and to incentivise small traders/businesses to proactively accept payments by digital means, it said.
“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 tax department added.
Legislative amendment in this regard would be carried out through the Finance Bill, 2017, the CBDT added.
Following decision to demonetise old Rs 500/1000 notes, the government has taken several measures to encourage digital payments to promote less cash economy.