Providing a relief to small businesses, The Centre announced it will amend the Income Tax Act in Budget 2017 to reduce the rate of deemed profit from 8 to 6 per cent for small firms with a turnover of less than Rs.2 crore who receive their payments electronically, the Finance Ministry announced on Monday.
“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,” the Central Board of Direct Taxes (CBDT) said in a communication.
This means that portion of sales for which payment is received in digital means, the profit will be considered at 6% and tax levied accordingly. The portion for which consideration is received in cash, the deemed profit will be higher 8%, implying a higher tax on such income. This incentive is being offered 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,“ the statement said.
The Union Government had earlier announced 2 new schemes namely Lucky Grahak Yojana and Digi-Dhan Grahak Yojana for encouraging digital payments.