Small grocers, contractors to gain from tax benefits for digital payments

Small businesses will have to show separate accounts of digital payments to get the benefit

The central government’s push for cashless transactions is likely to benefit small businessmen filing the tax under the presumptive tax scheme for the current financial year.

The Central Board of Direct Taxes (CBDT) has reduced the taxable income under the deemed profit or presumptive income scheme from 8 per cent of the gross turnover to 6 per cent if their payments have come through banking or digital channels. This will be applicable for the current financial year.

The move is likely to benefit small groceries, civil contractors who undertake small jobs, etc. 

The presumptive tax scheme is not applicable to transport contractors or agencies, or those receiving brokerage or commission. 

“The CBDT press release seems to suggest the benefit will be in the current financial year and mentioned in the Budget. Whether it will continue is not clear,’’ said Pranav Sayta, tax partner, EY India.

Under the presumptive tax scheme, businesses whose gross turnover or receipts is less than Rs 2 crore need not maintain separate books of accounts or have them audited if they pay tax on 8 per cent of the total turnover. The rationale being that once taxpayers fall within the scheme of presumptive taxation, all business deductions and allowances are deemed to have been allowed. This relieves taxpayers from additional compliance, such as, maintaining books of account and getting it audited for income tax purposes. 

If taxpayers want to pay income tax on the actual profit earned, which may be lesser than the deemed profit, they will have to maintain books of account and get them audited for income tax purposes. Once a taxpayer opts out presumptive scheme for a particular year, it cannot avail the scheme for next five successive years. Also, if the payments are received in cash, then the existing rate of 8 per cent will continue to apply. 

While this will help small businesses and encourage them to adopt banking, will it increase cost if they have to maintain separate records of payments received in cash and those received through banking or digital means?

According to Sayta, it may not be so. “As of now, the businesses have to maintain records of total turnover. Now additionally they have to collate bank statements to show direct credit, credit/debit statements, mobile payment statements, etc. This should not increase the cost too much,’’ he says.

One has to wait for the Budget for clarity on how it will be implemented, says Naveen Wadhwa, deputy general manager – research and development, Taxmann.com. “The government would bring in a mechanism to ensure that those filing returns under the presumptive taxation scheme correctly declare their digital transactions. They could be made to attach a self-declaration or obtain a certificate from their banks or from a chartered accountant,’’ he says.

While professionals with gross receipts of less than Rs 50 lakh are also covered under the presumptive scheme and the taxable income is deemed to be 50 per cent, this change does not apply to them. Wadhwa says it is unlikely that the government will bring similar amendment for professionals.