Government on December 20 said small traders will be able to save up to 46 per cent in tax by migrating from cash to digital transaction mode, as the decision to tweak the presumptive income norms would reduce tax liability.

“Apart from making tax saving of up to 46 per cent by migrating to digital mode, small traders would be able to build their books which may help them get loans easily,” Finance Ministry said in a statement.

Also, if transactions are carried out through banking channels, then anybody having annual turnover of up to Rs 66 lakhs will have zero tax liability after availing the benefit of Section 80C, after amendment of the rate structure, it said.

Earlier in the day, Finance Minister Arun Jaitley said “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. Some traders would get more than 30 per cent tax advantage if they make transactions through digital route.”

Under the existing Section 44AD of the Income-Tax Act, 1961 — an individual, Hindu undivided family or a partnership firm other than limited liability partnership — carrying on any business, having a turnover of Rs 2 crore or less, the profit is deemed to be 8 per cent of the total turnover for taxation.

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.

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.

Citing example, the statement said, if a trader makes his transactions in cash on a turnover of Rs 2 crore, then his income under the presumptive scheme will then be presumed to be Rs 16 lakhs at the rate of 8 per cent of turnover.

After availing of Rs 1.5 lakh of deduction under Section 80C, his total tax liability will be Rs 2,67,800.

However, if he shifts to 100 per cent digital transactions under the new announcement made, his profit will be presumed to be at Rs 12 lakh at the rate of 6 per cent of turnover, and after availing of Rs 1.5 lakh under Section 80C, his tax liability now will be only Rs 1,44,200.

Source: Business Standard