As soon as calendar strikes April 1st, the financial year will end and everyone will be occupied by calculating and efiling income tax. This time scenario is a bit different as Indian Government is a lot more focused on building a cashless economy of this nation. To promote this view, the government has taken few initiatives to attract small businesses like local stores and grocery shops as they are a big part of our economy.
Small businesses across India, which are involved in manufacturing or retail or wholesale trading tend not to maintain a proper account book. Thus, they measure their income as deemed profit during efiling income tax. So, the new announcement to promote cashless transactions is that the deemed profit rate will be decreased to 6% from 8% if small businesses turn digital. This 8% rule was mentioned in Section 44D of Income Tax Act which is now changed to 6% of gross rate.
So how you will be getting the tax benefit during efiling income tax?
Assume, you have a digital turnover of 1Cr per financial year and 100% of it is through digital transactions. Then your deemed profit will be counted as INR 6 lakhs and after taking out deductions under Section 80C(which is INR 1.5 lakhs), your total taxable income will be INR 4.5 lakhs. If you are making transactions in cash mode, then the total profit will be counted as INR 8 lakhs for a total income of INR 1Cr. After deductions as per Section 80C, the taxable income will be 6.5 lakhs. So, you can see that you will be saving up to 72% during efiling income tax by going digital.
This change can bring a big change in the picture of Indian small businesses and their transaction structure. However, the amendments are yet to finalize during finance budget 2017 but the amendment will be assumed to affect the efiling income tax for the financial year 2016-17.