New Delhi: Small traders and businesses with a turnover of up to Rs. two crore are liable to pay less tax if they accept payments through banking and digital means, said Finance Minister Arun Jaitley on Tuesday.
"An important change has been made with new notifications amending the earlier order which was announced during the course of budget 2016-17 wherein the small traders and businessmen who do not maintain proper accounts and have turnover of up to Rs. two crore are presumed to have earned eight percent income or profit for tax purposes," said Jaitley.
"But if they use digital modes of payments, their income will now be presumed to be six percent of the turnover and not eight percent," he added.
He said the decision will help in achieving the government's mission of moving towards a cashless economy and to incentivize small traders/businesses to proactively accept payments by digital means.
However, the existing rate of deemed profit of eight percent referred to in Section 44AD of the Income Tax Act shall continue to apply in respect of total turnover or gross receipts received in cash, stated the Central Board of Direct Taxation (CBDT) in a communication.
Under 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. two crore or less, the profit is deemed to be eight percent of the total turnover for taxation.
"Many traders will get the tax advantage of above 30 percent if the mode of transaction or payment is done using digital modes," he added.