Budget 2019 India: To push cashless economy, small business owners getting payments by credit card, mobile wallets should get this tax benefit

In its pre-budget memorandum for 2019-20, the Federation of Indian Chambers of Commerce and Industry (FICCI) has put forth a recommendation that may help the small taxpayers in computing a lower income on presumptive basis thereby reducing their tax liability. The suggestion is aimed at small taxpayers who have opted to adopt the presumptive taxation scheme under sections 44AD of the Income-tax Act, 1961, wherein they can declare income at a prescribed rate and, in turn, is relieved from tedious job of maintenance of books of account.

Existing rules

Currently, in case of a person adopting the provisions of section 44AD, income will be computed on presumptive basis, i.e., 8 percent of the turnover or gross receipts of the eligible business for the year. In addition to a few other conditions, the scheme has been restricted to resident individuals and HUF with business whose total turnover or gross receipts does not exceed Rs 2 crore.

However, the income will be calculated at a rate of 6 percent in respect of total turnover or gross receipts which is received by an account payee cheque or draft or use of electronic clearing system through a bank account. This leaves the other non-cash modes to derive the advantage similar to transactions routed through banking channels.“The intent appears to be conceptually a push for digital transactions, however, there are certain digital modes of payment like mobile wallets, credit cards etc., which may still be not covered within the scope of the defined mode of payment as they only cover transactions done by electronic clearing system through a bank account.”

Recommendation

While the business class and small tax payers have started using the digital modes extensively in their day-to-day transactions, FICCI is asking the government to incentivise all non-cash transactions and include payments through mobile wallets, credit cards etc under the ambit of the presumptive taxation scheme.

FICCI recommends, “In all the sections introduced to promote digital economy, the mode of payment should be defined in such a manner that all non-cash transactions done through traceable mode should be covered within the ambit. It is further suggested that benefit of lower rate of tax of 6 percent, should also be extended for presumptive tax under section 44ADA and 44AE. The presumptive taxation scheme for professionals such as doctors are covered separately under Section 44ADA and Section 44AE covers the presumptive tax for truck owners.”

Impact

Small taxpayers using mobile wallets and credit cards for their business transactions stand to gain as such transactions may also get qualified as covered by electronic clearing system through bank. Effectively, for the computation of the income for such non-cash transactions through other than bank channel will be considered at 6 percent instead of current 8 percent of total turnover. The move may also help boost the digital footprints across the business community in the country.

What is presumptive taxation scheme

Under the normal provisions of the income-tax law, taxable business income will be computed after allowing deduction in respect of expenses which are deductible as per the Income-tax Act and after disallowing expenses which are not deductible as per the Income-tax Act. To give relief to small taxpayers from this tedious work, the Income-tax Act has framed the presumptive taxation scheme under sections 44AD, sections 44ADA and sections 44AE. In case of a person who is opting for the presumptive taxation scheme of section 44AD, the provisions of allowance or disallowances as provided under the Income-tax Law will not apply and income computed at the presumptive rate of 8 percent / 6 percent will be the final taxable income of the business covered under the presumptive taxation scheme and no further expenses will be allowed or disallowed.