Benefit in 44AD for sale through banking channel
What is the benefit in 44AD available for sale via banking/digital means
This benefit will be available to the taxpayers paying tax availing the benefit in 44AD of Income Tax Act. As per the current provisions they pay tax on 8% of total turnover. But to promote the less cash economy government has provided them an incentive. Now they will need to pay tax on 6% of turnover made via banking or digital channel.
A circular from finance ministry has been released in this regard. It says that the presumptive income for the purpose of section 44AD will be 6% in case of digital sales.
Generally this benefit is available to small businessmen. You are not required to maintain books of accounts if you pay tax under this section. You are also not required to audit your books of accounts.
What will be the impact on taxation of taxpayer taking benefit in 44AD
We can under stand the impact of this benefit in following table.
|
Scenario |
Turnover |
Income |
Tax (30% assumed) |
|
Existing |
1lac |
8000 |
2400 |
|
Proposed |
1lac |
6000 |
1800 |
If we see effectively it will reduce the presumptive income by 25%.Resulting taxes will also be reduced by almost same percentage if we ignore the slab for tax.
Who can avail this benefit in 44AD
The presumptive taxation scheme of section 44AD can be adopted by following persons : 1) Resident Individual
2) Resident Hindu Undivided Family
3) Resident Partnership Firm (not Limited Liability Partnership Firm).The scheme is not available to a non-resident and any person other than an individual, a HUF or a partnership firm (not Limited Liability Partnership Firm).
But taxpayers engaged in following businesses are not eligible for the scheme
- Business of plying, hiring or leasing of goods carriages referred to in section 44AE.
- A person who is carrying on any agency business.
- A person who is earning income in the nature of commission or brokerage
How the income is calculated in 44AD:
Income u/s 44AD is calculated at 8% of turnover. Now in case of turnover via banking channel the income will be 6% of such turnover.
| Particulars | Income presumed |
| Turnover or gross receipts from the business via cash | 8% |
| Turnover or gross receipts from business via banking or digital channel | 6% |
| Tax | Normal rate on amount calculated at above % |
Illustration by Finance ministry for benefit u/s44AD for digital turnover:
|
Particulars |
100% Cash Turnover (Rs.) |
60% Digital Turnover (Rs.) |
100% Digital Turnover (Rs.) |
|
Total Turnover |
2 Crore |
2 Core |
2 Crore |
|
Cash Turnover |
2 Crore |
0.80 Crore |
NIL |
|
Digital Turnover |
NIL |
1.2 Crore |
2 Crore |
|
Profit on Cash Turnover @ 8% |
16 Lakh |
6.40 Lakh |
NIL |
|
Profit on Digital turnover @ 6% |
NIL |
7.20 Lakh |
12 Lakh |
|
Total Profit |
16 Lakh |
13.60 Lakh |
12 Lakh |
|
Deduction u/s 80C |
1.5 Lakh |
1.5 Lakh |
1.5 Lakh |
|
Taxable Income |
14.50 Lakh |
12.10 Lakh |
10.50 Lakh |
|
Tax Payable |
2,67,800 |
1,93,640 |
1,44,200 |
|
Tax Saving |
NIL |
74,160 |
1,23,600 |
source: Press information bureau
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CA Shafaly Girdharwal
CA
New Delhi, India
CA Shaifaly Girdharwal is a GST consultant, Author, Trainer and a famous You tuber. She has taken many seminars on various topics of GST. She is Partner at Ashu Dalmia & Associates and heading the Indirect Tax department. She has authored a book on GST published by Taxmann.
