Finance Minister Arun Jaitley on Tuesday said that the small traders and businessmen will have over 30 per cent tax advantage if they carry out their transactions through digital or cheque modes.
The government on Monday amended Section 44AD of the income tax rule to offer this benefit to small traders. According to the amended tax rules, small traders and businesses with a turnover of up to Rs 2 crore will benefit from the new government incentive.
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 per cent income or profit for tax purposes.
But if they use digital mode of payments, their income will now be presumed to be 6 per cent of the turnover and not 8 per cent.
“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 per cent tax advantage if he transacts through digital mode,” Jaitley told reporters in New Delhi.
“…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 yesterday in a notification.
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, the CBDT said.
Following decision to demonetise old Rs 500/1,000 notes, the government has taken several measures to encourage digital payments to promote less cash economy.