Small traders and businesses with a turnover of up to Rs 2 crore will pay less tax if they accept payments through banking and digital means, finance minister Arun Jaitley said on Monday.
He said in the budget for 2016-17 that 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 modes of payments, their income will now be presumed to be 6% of the turnover and not 8%.
“A very important change has been made (with) a new notification amending the earlier order which was announced during the course of budget 2016-17.
“All small traders, businessmen and workshop owners whose total turnover is less than Rs 2 crore a year may not maintain any books of account and their income was presumed to be 8% of turnover. Now this order has been amended. And to the extent that they deal digitally or through cheques and banking transactions the presumptive income will not be 8% but will be 6%,” he told reporters.
To the extent that they deal in cash their presumptive income will be 8%, he said.
“Therefore the object of this order is that those who deal in digital or through a banking transaction mode their income will be presumed to be 2% less that is 6% and accordingly this will constitute a major tax relief to be given to them,” he said.
Earlier in the day, the CBDT in a communication said that under the existing Section 44AD of the Income-Tax Act, 1961, in case of certain assesses (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% under section 44AD of the Act to 6 % 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) 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, it said.
“However, the existing rate of deemed profit of 8% referred to in section 44AD of the Act, shall continue to apply in respect of total turnover or gross receipts received in cash,” the tax department added.
Following decision to demonetise old Rs 500/1000 notes, the government has taken several measures to encourage digital payments to promote less cash economy.