Tax benefits for digital Sales

Key Points about Tax benefits for digital Sales

• Section 44AD of Income tax Act to be Amended for Digital Sales  :– The Central Board of Direct Taxes (CBDT) has reduced the taxable income under the deemed profit or presumptive income scheme u/s 44AD of Income Tax Act from 8 per cent of the gross turnover to 6 per cent if their payments for sales have come through banking or digital channels. This will be applicable for the current financial year i.e FY 2016-17 [Legislative amendment in this regard shall be carried out through the Finance Bill, 2017. ]
• Meaning of Digital Sales :-  Digital transaction includes payment received by Cheque or through any other digital means.
• Illustration  of Tax Saving on Digital Sales : If a trader makes his transactions in cash on a turnover of Rs.Two Crore, then his income under the presumptive scheme will then be presumed to be Rs. 16 lakhs [i.e @ 8% of turnover ].  After availing of Rs. 1.5 lakhs of deduction under Section 80C, his total tax liability will be Rs. 2,67,800/-. However, if he shifts to 100% digital transactions under the new announcement made, his profit will be presumed to be at Rs. 12 lakhs @ 6% of turnover, and after availing of Rs. 1.5 lakhs under Section 80C,  his tax liability now will be only Rs.1,44,200/.
• Who Can avail the Scheme u/s 44AD of Income Tax : An Assesses (i.e. an individual, HUF or a partnership firm other than LLP) carrying on any business  and turnover does not exceeds Rs 2 Crore in the previous year.
• Who can not avail the scheme u/s 44AD of Income tax :– The presumptive tax scheme is not applicable to person carrying on Profession u/s 44AA of Income tax , carrying on an agencies, or carrying on the business of plying, hiring or leasing goods carriages  /Transporter or those receiving brokerage or commission or whose turnover exceeds Rs 2 Crore.
• If opted out , can not avail again :- Once a taxpayer opts out presumptive scheme for a particular year, it cannot avail the scheme for next five successive years.
• No Deduction of Expenses :– Any deduction allowable under the provisions of sections 30 to 38 of Income tax Act  (Business Expenses) shall be deemed to have been already given full effect to and no further deduction under those sections shall be allowed
• Sales in Cash :- If the payments are received in cash, then the existing rate of 8 per cent will continue to apply.
• Tax Benefit for Digital Sales for next year : The CBDT press release seems to suggest the benefit will be in the current financial year 2016-17 and mentioned in the Budget. Whether it will continue is not clear.
• No need to maintain Books of accounts :- Under the presumptive tax scheme, businesses whose gross turnover or receipts is less than Rs 2 crore need not maintain separate books of accounts or have them audited if they pay tax on 8 per cent of the total turnover.
• If wants to Pay less Tax :- If taxpayers want to pay income tax on the actual profit earned, which may be lesser than the deemed profit, (suppose their profit is only 5%) they will have to maintain books of account and get them audited for income tax purposes.
• Keep Record of Digital Sales :-  As of now, the businesses have to maintain records of total turnover. Now additionally they have to collate bank statements to show direct credit, credit/debit statements, mobile payment statements, etc.
• Save Tax upto 46% by Digital Sales u/s 44AD :– Apart from making a tax saving of almost 46% by migrating to banking mode, the small businesses would be able to build their books which may  also help them get bank loans easily.  Also, if transactions are carried out through banking channels, then anybody having annual turnover up to Rs. 66 lakhs will have zero tax liability after availing the benefit of Section 80C, after amendment of this new rate structure.
  

  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