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Wednesday, 15 February 2017

New Year Bonanza – 6% Profit on trading through cashless

There are lots of thing happening in the Indian Economy recently like IDS, Demonetization, PMGKY 2016 many more.  Government is in a temperament to curtail the black money and corruption from its roots. At the same time they want to boost the cashless platform for the traders. To motivate traders to go cashless government is giving the New Year Bonanza for all the small scale traders who are going cashless and helping to grow the cashless economy in the country.
Let’s understand what exactly government want to say and the benefits of this bonanza to small traders. As per section 44AD of Income-tax Act, assessee being individual, HUF or partnership firm, engage in any businesses, except professionals as per section 44AA(1), person having income from commission, brokerage or agency income & running business of plying, hiring or leasing of goods transporters, are required to show income tax on 8% of total turnover. Turnover limit for the purpose of section 44AD is Rs. 2 Crore from AY 2017-18 onwards, before it was Rs. 1 Crore till AY 2016-17).
Trades like – household suppliers, pharmacy, retailers etc. are covered in section 44AD.
Now with this new provision to section 44AD, government want to give the additional tax benefits 2% to the traders covered section 44AD who perform their transactions other than cash i.e. thru bank payments/receipts only. Let me put this in other way by using the test case as below;
Test case 1:
Trader who is running the business, his gross turnover or gross receipts is Rs. 90 lakhs during the year. Out of these 90 lakhs, 40 lakhs are thru cash receipts and balance 50 lakhs thru bank transactions. So as per the new provision, he is liable to pay tax on the profit @ 8% on 40 lakhs i.e. 3.2 lakhs & 6% on the balance turnover i.e. 3 lakhs.
So his aggregate taxable income will be 6.2 lakhs and the tax liability will be Rs. 1,27,720 including education cess.
Now in the same test case let us assume that we has not done any transactions thru bank, all his turnover is in cash transactions. So his total tax liability would be Rs. 1,48,320 (20.6% tax on the profit @ 8% of 90 lakhs).
So that means with the new provision each and every trader covered as per the provision of section 44AD will be benefited on tax liability to the extent on 2% of his turnover.
There are certain key points that require the attention of taxpayer
  1. The eligible assessee for this section would be individual, HUF and partnership firms. All other categories of tax payers are not eligible.
  2. Only business income is eligible like traders, whole sale dealer, retail dealer and manufacturer etc. excluding income from commission, brokerage, hiring and plying of goods carriages.
  3. Minimum profit to show is 8% or 6% as the case may be. Taxpayer can show any % over and above. If the profit is showed in excess of 8%/6%, then the chances of facing scrutiny will be very less.
  4. As this is presumptive income as per section 44AD, it is assumed that all the applicable deduction from section 30 to 38 has been allowed. Assessee cannot claim any deduction from section 30 to 38.
  5. Deductions as per section 40, 40A, 43B will be allowed irrespective of payment.
  6. ITR 4S (Sugam) to be use by the assessee claiming profit as per 44AD.
  7. Assessee is requires to maintained the sales records. Assessee is not needed to maintain books specified as per 44AA.
  8. If assessee wishes to show profit less than 8%/6% then he as to get his accounts audited under section 44AB and also required to maintain books of accounts as per section 44AA.

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