Government decides to reduce the existing rate of deemed profit under section 44AD of the Income Tax Act in respect of amounts/receipts through banking channel/digital means
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.
In order 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 has been decided 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.
- Remarks :
- What about Credit sales for which payment has not received till end of the year /Filing of Return?Not yet clarified but hope will be cleared in Finance Bill-2017
Legislative amendment in this regard shall be carried out through the Finance Bill, 2017.
Summary of The 44AD scheme after amendment proposed is given as under
- The existing provisions of section 44AD provide for a presumptive taxation scheme for an eligible business.
- Where in case of an eligible assessee engaged in eligible business having total turnover or gross receipts not exceeding rupees two crore,
- Income @ 6% in respect of the amount of total turnover or gross receipts received through banking channel / digital means for the financial year 2016-17 and a sum equal to 8% for gross receipt/total turnover received in Cash ,or as the case may be, a sum higher than the aforesaid sum shall be deemed to be profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession".
- Under the scheme, the assessee will be deemed to have been allowed the deduction under sections 30 to 38 of the Act.
- The expenditure in the nature of salary, remuneration, interest etc. paid to the partner as per clause (b) of section 40 shall not be deductible while computing the income under section 44AD
- Further, the eligible assessee can report income less than the deemed income of eight per cent. of the total turnover or gross receipts not exceeding rupees two crore provided he maintains books of accounts as per section 44AB.
- If this scheme opted by It is also proposed that where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five consecutive assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1), he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of sub-section (1)(read details here)
- Eligible assessee shall be require to pay advance tax. However, in order to keep the compliance minimum in his case, it is proposed that he may pay advance tax by 15th March of the financial year.