Measures for Promoting Digital Payments & Creation of Less-Cash Economy: Benefit of lower rate of Income Tax on digital turnover for small businesses.

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Measures for Promoting Digital Payments & Creation of Less-Cash Economy: Benefit of lower rate of Income Tax on digital turnover for small businesses.

The benefit of lower rate of Income-tax on digital turnover for small businesses up to a turnover of Rs.2,00,000,00 (Rupees Two Crore), announced by the Government yesterday under Section 44AD of the Income-tax Act, 1961 is a huge benefit given to businessmen for promoting digital/banking transactions. The benefits given are explained in the following paragraph.

If a trader makes his transactions in cash on a turnover of Rs.Two Crore, then his income under the presumptive scheme will then be presumed to be Rs. 16 lakhs @ 8% of turnover.  After availing of Rs. 1.5 lakhs of deduction under Section 80C, his total tax liability will be Rs. 2,67,800/-. However, if he shifts to 100% digital transactions under the new announcement made, his profit will be presumed to be at Rs. 12 lakhs @ 6% of turnover, and after availing of Rs. 1.5 lakhs under Section 80C,  his tax liability now will be only Rs.1,44,200/. Here, digital transaction includes payment received by Cheque or through any other digital means. In the following example, the benefit obtained by traders and small businesses is explained in 3 different scenarios:

 

Particulars 100% Cash Turnover (Rs.) 60% Digital Turnover (Rs.) 100% Digital Turnover (Rs.)
Total Turnover 2 Crore 2 Core 2 Crore
Cash Turnover 2 Crore 0.80 Crore NIL
Digital Turnover NIL 1.2 Crore 2 Crore
Profit on Cash Turnover @ 8% 16 Lakh 6.40 Lakh NIL
Profit on Digital turnover @ 6% NIL 7.20 Lakh 12 Lakh
Total Profit 16 Lakh 13.60 Lakh 12 Lakh
Deduction u/s 80C 1.5 Lakh 1.5 Lakh 1.5 Lakh
Taxable Income 14.50 Lakh 12.10 Lakh 10.50 Lakh
Tax Payable 2,67,800 1,93,640 1,44,200
Tax Saving NIL 74,160 1,23,600

 

Apart from making a tax saving of almost 46% by migrating to banking mode, the small businesses would be able to build their books which may also help them get bank loans easily.  Also, if transactions are carried out through banking channels, then anybody having annual turnover up to Rs. 66 lakhs will have zero tax liability after availing the benefit of Section 80C, after amendment of this new rate structure.

About Post Author

Suman Munshi

Founder Editor of IBG NEWS (15/Mar/2012- 09/Aug/2018). Recipient of Udar Akash Rokeya Shakhawat Hossain Award 2018. National Geographic & Canon Wild Clicks 2011 jury and public poll winner. Studied Post Graduate Advance Dip in Computer Sc., MBA IT,LIMS (USA & Australia), GxP(USA & UK),BA (Sociology) Dip in Journalism (Ireland), Diploma in Vedic Astrology, Numerology, Palmistry, Vastu Shastra & Feng Sui 25 years in the digital & IT industry with Global MNCs' worked & traveled in USA, UK, Europe, Singapore, Australia, Bangladesh & many other countries. Education and Training advance management and R&D Technology from India, USA, UK, Australia. Over 30 Certification from Global leaders in R&D and Education. Computer Science Teacher, IT & LIMS expert with a wide fan following in his community. General Secretary West Bengal State Committee of All Indian Reporter’s Association
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