Traders using digital mode of payment will get a significant tax benefit: FM

The Dollar Business Bureau

The Finance Minister when speaking to the press on Tuesday said, “the government's decision to tweak the presumptive income norms would reduce the tax liability by up to 30% for those small traders opting for digital transactions.”

Stressing on the benefits to the small traders using digital mode of payment he said, “in the Budget for 2016-17, small traders and businessmen, with turnover of up to Rs.2 crore who did not maintain proper accounts, were presumed to have earned 8% income or profit for tax purposes. But if they use digital mode of payments, their income will now be presumed to be 6% of the turnover and not 8%.”

"So he will get a significant tax benefit. The object is if you do transactions using digital mode then you can pay less tax. It is a tax incentive to support digitisation of the economy. And if we calculate it, then some traders would get over 30% tax advantage if he transacts through digital mode," Jaitley told reporters.

Under the existing Section 44AD of the Income-Tax Act, 1961, in case of certain assessees (an individual, HUF or a partnership firm other than LLP) carrying on any business having a turnover of Rs.2 crore or less, the profit is deemed to be 8% of the total turnover for taxation.

"...it has been decided to reduce the existing rate of deemed profit of 8 per cent under section 44AD of the Act to 6 per cent in respect of the amount of total turnover or gross receipts received through banking channel/digital means for the financial year 2016-17," the Central Board of Direct Taxes (CBDT) had said on Monday in a notification.

Reacting to the Finance Minister’s decision, the CBDT said, “the decision has been taken to achieve the government's mission of moving towards a less cash economy and to incentivise small traders/businesses to proactively accept payments by digital means.”

Following the decision to demonetise old Rs. 500/1,000 notes, the government has taken several measures to encourage digital payments to promote less cash economy.