Measures for Promoting Digital Payments & Creation of Less-Cash Economy: Benefit of lower rate of Income Tax on digital turnover for small businesses

The benefit of lower rate of Income-tax on digital turnover for small businesses up to a turnover of ₹ 2,00,000,00 (Rupees Two Crore), announced by the Government yesterday under Section 44AD of the Income-tax Act, 1961 is a huge benefit given to businessmen for promoting digital/banking transactions. The benefits given are explained in the following paragraph.

If a trader makes his transactions in cash on a turnover of Rs.Two Crore, then his income under the presumptive scheme will then be presumed to be ₹ 16 lakhs @ 8% of turnover.  After availing of ₹ 1.5 lakhs of deduction under Section 80C, his total tax liability will be ₹ 2,67,800/-. However, if he shifts to 100% digital transactions under the new announcement made, his profit will be presumed to be at ₹ 12 lakhs @ 6% of turnover, and after availing of ₹ 1.5 lakhs under Section 80C,  his tax liability now will be only ₹ 1,44,200/. Here, digital transaction includes payment received by Cheque or through any other digital means. In the following example, the benefit obtained by traders and small businesses is explained in 3 different scenarios:

Apart from making a tax saving of almost 46% by migrating to banking mode, the small businesses would be able to build their books which may also help them get bank loans easily.  Also, if transactions are carried out through banking channels, then anybody having annual turnover up to ₹ 66 lakhs will have zero tax liability after availing the benefit of Section 80C, after amendment of this new rate structure.