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Now Small Merchants can save upto 46% tax with Digital Transactions

Govt is luring Traders with 46% tax savings to push them towards digital payments

Good news for small merchants and businesses those who are looking ways to save taxes. There is a golden opportunity for the small business people to save up to 46% tax and Finance Ministry Arun Jaitley explained the better ways to save tax.

Finance Minister Arun Jaitley himself explained the possible ways to save 46% tax for small-scale merchants. Usually, this advice and tricks are shared by CA or Accountants, but here, our Finance Minister himself is sharing them.

However, the only hook is that these tax savings can be consummated by going cashless, thereby entering the banking system.  By doing this, the small business man will able to maintain these books, and thus become eligible for loans at low-interest rates.

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Jaitley said, “Apart from making a tax saving of almost 46 percent by shifting to banking mode, the small merchants would be able to form their books which may also help them get bank loans easily.”

Step 1

According to the new changes done to Income-Tax Act, 1961, Government has provisioned tax benefits for the small sellers, once he chooses for conducting business via banking channels.

As per the new rules, any business having an income of less than Rs 66 lakhs will have zero tax charge, if they gain the benefits of section 80C.

Step 2

Under the same section 80C, if a retailer operates business via 100% digital mode, then his business would be responsible for paying 30% less tax.

Let’s take this. Under the current section 44AD of the income-Tax Act, 1961, if any organization conducts a business having revenue of more than Rs 2 crores, then the I-T department takes up 8% profit of the total gross income, which is apt for tax. Now, currently this statement is only for those entities that don’t maintain their papers and conduct business via mainly through liquid cash.

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Now, as per the new changes to the Income Tax Act, 1961, if a company does their 100% of transactions via digital mode, then the Income Tax Dept will assume 6% of profit on the revenue of Rs 2 crore, thereby promoting a direct 2% on the overall tax paid.

These latest tax changes were introduced after the demonetization of currency on November 8.

Example for Tax Savings for going cashless

Cash Mode: If a business has Rs 2 crore of turnovers, The Income tax Department will assume 8% profit on this turnover, which makes it Rs 16 lakh. Under Section 80C, the trader can avail discount of Rs 1.5 lakh, which will make the total tax payable as Rs 2,67,800.

Cashless Mode: Now, in this mode, Income Tax Department will assume 6% profit on this gross revenue of Rs 2 crore, which means he has to pay tax on Rs 12 lakh now, instead of 16 lakh. So, finally getting Rs 1.5 lakh discount, the total tax payable would be Rs 1,44,200 which means Rs 1,23,600 or 46% tax reduced on doing cashless.

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Deposits over Rs. 2.5 lakh are subjected to face tax

The impact of banning Rs 500 and Rs 1000 Notes in India is creating huge quandaries in the day to day expenses. However banks will allow depositing the amount in their accounts. Here comes the one of the key point in the story. The users who deposit the amount more than Rs.2.5 lakh in their bank accounts for scrapping Rs. 500 and Rs. 1,000 notes should pay the tax to the Government. In case of any uneven values are deposited in their accounts based on the owner’s income, there will be chance of collecting 200% penalty. These are the terms issued by the Government of India.

Government has also asked the banks to maintain the details of the PAN numbers of the users who are depositing the amounts in large numbers. These details have to be maintained for 50 days till December 30, 2016.

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In the similar way, people who are purchasing the Gold, Jewelry and more, in the form of cash has to submit their PAN details. Merchants will collect these details from the customers while the purchasing is happened. In case of non-compliance severe actions will be taken against them.

The recent decision from the government is for scrapping the high denomination notes in India and flush out the black money and fake currency, which is killing the economy and growth in the country.

Revenue Secretary Hasmukh Adhia says “We will be getting reports of all cash deposited during the period of November 10 to December 30, 2016, above a threshold of Rs. 2.5 lakh in every account”. He also mentioned that these all transactions are filed by the depositors in the income tax returns. Any transactions were mismatch, suitable actions are taken and considered as the case of tax payment violation.

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In this scenario, the tax amount is included with the penalty of 200% of the tax payable will be charged under the sections of Income Tax Act.

The people who are working with small businesses, housewives, workers, and artists who are having the cash as the savings in their homes are no need to worry about Tax department inspections. Says Mr Adhia.

There will be no questioning and annoyance from the Income Tax Department for the Deposits up to Rs. 1.5 or Rs. 2 lakh. These amounts come under the taxable income.