For small traders and businesses looking for ways to save taxes, this is the golden time indeed. India’s Finance Minister, Arun Jaitley has explained two ways using which small traders can save upto 46% tax.
Traditionally, these advices and tricks are usually shared by CA or Accountants, but here, our Finance Minister himself is sharing them.
However, the only catch is that, these tax savings can be accomplished by going cashless, thereby entering the banking system. Again, by doing so, the small business man will be able to maintain this books, and thereby become eligible for loans at less rate of interest.
Finance Ministry said in a statement, “Apart from making a tax saving of almost 46 per cent by migrating to banking mode, the small businesses would be able to build their books which may also help them get bank loans easily,”
As per the new amendments done to the Income-Tax Act, 1961, Govt. has provisioned tax benefits for the small traders, once he opts for conducting business via banking channels.
As per the new rules, any business having turnover of less than Rs 66 lakhs will have zero tax liability, if they avail the benefits of Section 80C.
Under the same Section 80C, if a trader conducts all his business via 100% digital mode, then his business would be liable to pay 30% less tax.
Let’s understand this first.
Under the current Section 44AD of the Income-Tax Act, 1961, if any entity (an individual, HUF or a partnership firm other than LLP) conducts a business having turnover of more than Rs 2 crore, then the Income Tax Department assumes profit of 8% of the total turnover, which is liable for tax. Now, this ‘assumption’ is made only for those entities who don’t maintain their papers, and conduct business via mainly cash mode.
However, now, as per the new amendments to the Income-Tax Act, 1961, if a business conducts their 100% of transactions via digital mode, then the Income Tax Dept. will assume 6% profit on the turnover of Rs 2 crore, thereby benefiting a direct 2% on the overall tax paid.
These recent tax amendments were introduced after November 8th, when demonetization was announced, and a major drive for cashless was initiated.
Example To Showcase Tax Benefits For Going Cashless
Say a trader has a turnover of Rs 2 crore.
Cash Mode: The Income Tax Dept. will assume 8% profit on this turnover, which makes it Rs 16 lakh. Under Section 80C, the trader can avail discount of Rs Rs 1.5 lakh, which will make the total tax payable as Rs 2,67,800.
100% Cashless Mode: Now, the Income Tax Dept. will assume 6% profit on this turnover of Rs 2 crore, which means he has to pay tax on Rs 12 lakh now, instead of Rs 16 lakh.