Government has announced that small traders will be able to save up to 46% in tax if the abandon cash transaction and move to digital transactions. The government has stated that small traders will not only be able to save tax by maximum 46% but also maintain their books which they do not often.
If an individual carries out transaction which is cashless and has annual turnover up to Rs 66 lakhs will have not tax liability post availing the benefit under section 80C post the amendment made in the new rate structure. Government has taken the step with the aim of encouraging the cashless transaction. Traders will finally get around 30% of the tax advantage if the transaction is digital.
What Does The Report Say?
Tax Benefit for small traders
The existing section 44AB of the Income-Tax Act, 1961 states that:
If an Individual, HUF or a partnership firm other than LLP is carrying on any business which has turnover over Rs 2 crores or less, the profit is taken as 8% of the total turnover for taxation.
For instance if the trader does cash transaction on a turnover of Rs 2 crore, then his income under the scheme will be assumed as Rs 16 lakhs at the rate of 8% of turnover. Post availing the benefit of Rs 1.5 lakh deductions under section 80C, total tax liability will be Rs 2,67,800. In case an Individual carries 100% of the digital transactions under the new announcement made then profit will be presumed to be around Rs 12 lakhs at the rate of 6% of turnover and post availing the benefit under Rs 1.5 lakh under section 80C, tax liability will total to Rs 1,44,200.
Recently, government has taken a lot of decisions to limit cash transaction and and promote digital transactions. Only recently, the government has put ceiling of Rs 5,000 on deposit of old notes . An individual cannot pay the old notes at hospitals, railways station and various other places that accepted old notes. Government has stated that people should go and deposit the cash in one go. If an individuals goes to deposit notes several times, it will only raise suspicion.
Finance ministry has also stated that Reserve Bank of India has no dearth of cash and can cater to the cash need beyond December 30th. There is a provision under the Income Tax Act for small business and service providers which states that if a business does the turnover of less than Rs 2 crore, then there is no need to maintain books of account. Under the existing provision Income tax Department considers 8% profit for tax purposes. Total tax payable by an Individual is calculated on this 8% of the profit. However, service providers are not covered under the existing provision. Statement read that only the revenue generated from electronic transactions will be considered for calculating the profit of 8% and levying tax on it.
