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.
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.”
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.
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.
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.