The government of India offered incentives bonanza for small traders going digital. The government has announced 2% rebate in income tax for small traders and businesses having a turnover of up to INR 2 crores annually for receiving payments via digital mode instead of cash. This move is intended to promote digital transactions with the help of e-wallets, credit cards, debit cards and internet banking, for making India a less-cash society.
As per the provisions of the Income Tax Act, 1961, businessmen and small traders with an annual turnover up to INR 2 crores not maintaining proper accounts, their income is presumed to be 8% of their turnover. As per the recent announcement, if these small businesses start accepting payments via digital modes, their total income for the purpose of taxation would be presumed at 6% of their turnover instead of 8%.
Though, the current rate for the purpose of deemed profit at8%as referred to in Section 44AD of the Income Tax Act,1961would continue to apply for turnover received in cash.
The benefits of the decision taken by the government are explained as below:
If a businessman or a trader renders his business transactions in cash for a turnover up to INR 2 Crores, then the total income would be presumed to be INR 16 lakhs i.e., 8% of his turnover. However, if the businessman or a trader shifts to 100 percent digital transactions in pursuance of the new announcement, the total income would be presumed to be INR 12 lakhs i.e. 6% of his total turnover.
Consequently, the aim of this directive is that those dealing via a digital mode of transaction, their income would be presumedat2% less, accordingly this would constitute a key tax relief.
This decision has been considered for achieving the Indian government’s vision of the cashless economy and for incentivizing small traders and businesses for proactively accepting payments via digital means.
Post demonetization of old 500 and1000 denominations currency notes, the Indian government is taking various measures for encouraging digital payments for promoting the cashless economy.
Independently, the government of Assam also announced additional incentive of 0.75% for payments made via digital mode for petrol and diesel over and above what was announced by the Central Government.
Apart from these above measures, the Central Government has in the last few weeks has declared a slew of rebates like waiver of service charge for bookings train ticket through the IRCTC portal and concessions for online payments in respect of LIC insurance premium for boosting digital transactions. Such measures of the Central Government would move the Indian economy towards a cashless economy, gratifying those doing business in the right way and providing the tax evaders a bigger reason for moving away from such malpractices. All of these tax incentives would infuse confidence among honest taxpayers.
However, all of these measures are short-term and the real shift would dependent on the life style of the citizens to a great extent. While the youth seems to be very comfortable doing transactions digitally, the challenge would be in moving the older generation towards the digital way of transacting in everyday living.
You could give effect of transaction cost.
Ex. Turnover 2 CR
Less: 2% processing charges+15% service tax on charges.(4.6 lakhs)
on it 6% profit assume
=12 laks
Tax on 4 lakhs (being difference of 8% and 6%)= 120000(ignore cess)
Net savings = 120000-460000= -240000.
So practically it would result in lower profits.
Further government has not defined the meaning of digital payment I.e. whether it would include payment by account payee cheque or not.