Govt has Reduced Tax Burden on Small Traders & Businessmen

Budget 2023 - Limits Increased for Presumptive Taxation

Limits for presumptive taxation scheme for businesses is Rs. 2 crores as per Section 44AD and for professionals is Rs. 50 lakhs as per Section 44ADA. You can opt for presumptive taxation scheme only if your turnover does not exceed this limits. Budget 2023 increased the turnover limits as under:

However, the revised limits shall be applicable only in the cases where the cash receipts of the business/profession does not exceed 5% of the total receipts of business/profession. By increasing the limit only for those taxpayers who fulfill the criteria of 95% receipt through digital modes/authorised banking channels government has put clear emphasis on promoting digital/banking transactions.

Measures for Promoting Digital Payments & Creation of Less-Cash Economy

In yet another game-changing move, the ministry of finance has lowered the rate of deemed profits that are chargeable to tax under the presumptive scheme for businesses.

For the small business traders doing business in manufacturing, wholesale, retail or trading, opting for presumptive scheme of taxation u/s 44AD, earlier 8% of total turnover/gross receipts were taken as net income chargeable to tax.

But in a move to promote the digital transactions and creating a cashless economy, the Government of India has incentivised small traders/businesses by giving a beneficial lower rate of 6% of deeming profits on their total turnover, thereby giving a total tax savings of at least approximately 30%.

In the words of our Hon’ble FM- “There will be a significant tax benefit for small traders if you turn digital. It is a tax incentive to support digitisation of economy,” Mr. Arun Jaitley told the media. “If we calculate, many traders will get a tax advantage of more than 30 per cent for transactions in digital mode,” he added. 

How to Take the Benefit of the Presumptive Scheme of 6%? 

To take the tax benefit & save taxes, government has put a precondition for traders/businesses to proactively accept payments by digital means (i.e., through authoised banking channels), thereby reducing the existing rate of deemed profit of 8% under section 44AD to 6% in respect of the amount of total turnover or gross receipts received through banking channel / digital means from the financial year 2016-17.

However, the rate of 6% shall be applied only if the payments have been received through digital modes/banking channels on or before the due date of filing of return of income. If you don’t receive the payment against your receipts on or before the due date then the rate of 8% shall be applicable on such portion of turnover/gross receipt.   

Apart from saving taxes, there are additional financial benefits for the small traders/ business/start-ups for raising capital/ taking loans from Banks, as due to the transparency & nature of transactions being in white, they would be exposed less to income tax scrutiny & other government audits.

Who All Stand to Benefit?

Traders and businessmen who were already transacting through digital means during the current financial year would stand to benefit the most as this clarification seems to be retrospective in nature and applicable for transactions from 01/04/2016 up to 31/03/2017.

Don’t worry. Even if you received transactions in cash during the year, you could still benefit from doing your future transactions through digital means up to 31/03/2017 and enjoy the lower rate of deemed profit on the turnover received out of digital transactions on a pro-rata basis.

However, the existing rate of deemed profit of 8% referred to in section 44AD of the Act, shall continue to apply in respect of total turnover or gross receipts received in cash/other than recognised banking channels. We have explained the tax benefit/ savings which the trader & businessmen would be entitled to in case they adopt the incentive measure of the government, in the example below:

** For the sake of simplicity, we have computed the tax payable under the old regime.

As can be seen above, in the instant scenario trader having a total turnover of Rs.1 crore, in case of digital transactions would end up saving almost 76% of his taxes by opting for the beneficial scheme of digitisation by the government. This would a big relief for small traders, Kirana shops etc. who would now have more capital in their hands to save & invest. Legislative amendment in this regard shall be carried out through the Finance Bill, 2017.  

Press release of the Government of India. 

For reporting the income on presumptive basis, ITR-4 needs to be filed. Follow our page for better understanding & easy filing. If you’re a trader and want to file your taxes, visit our page on tax filing for traders.