section 44A D tax changes budget 2017 from 8% to 6%

Section 44A D tax changes budget 2017 from 8% to 6%

Not only in the income tax slabs but Union Finance Minister has given relaxation in Section 44AD under Income Tax Act as well in this Union Budget 2017-18. It seems like the Modi government will not leave any stone unturned to make common people smile. The reduction in Income Tax in lower slabs has already made the middle class people happy and joyful. On the other to support the small and medium enterprises there is also a reduction in Section 44AD under Income Tax. Here are few details of the section and tax reduction.

What is Section 44AD in Income Tax?

  • Section 44AD is one of the taxes that are levied on the small and medium enterprises in India. This tax is mainly initiated by the Income Tax Department of India to lighten the burden of Administrative expenses by the government.
  • This tax is applicable only on those organisations that have annual turnover of Rs. 2 Cr and less. There are few selective small businesses like broker, hiring, commission, leasing and such that are not included under this tax.
  • If any organisation is considered to fall under Section 44AD then the organisation will not be able to request for any other tax deductions under any section such as Section 36 or something else.

Need for Section 44AD

  • Small and medium businesses mostly have the cash transactions. It is difficult for the small traders to maintain books and accounts in all respect as the business involves large cash transactions.
  • Section 44AD in Income Tax Act is being initiated by the Income Tax Department to lighten the burden of administrative expenses from the small business. Mainly these companies cannot maintain proper books. Initiating such section will help them maintain yearly account through this tax payment.

44AD Tax Revision in Union Budget 2017-18

The tax rate, according to the earlier budget was 8% of the total gross income of the company in a year. Now, this year as per the Finance Minister the tax rate will be levied at the rate of 6% for the organisation who will use digital mode of payment.

This reduction is made to encourage the digital payments across the nation. As mentioned that most of the transactions in such small business are done through cash this reduction will encourage many traders to opt for digital payments.

As we know that the government is keen to have cashless India and this tax reduction is one of the major steps towards digital India. As much as the organisation and traders will receive the payments through digital mode, they will have to pay only 6% of total gross income.

The upper limit of the small business that is considered under this Section 44AD is Rs. 2 Cr and less in a financial year. From financial year 2018-19, the new and revised tax rate will be levied on the small entrepreneurs.

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