New Delhi, Dec 20 (PTI) Finance Minister Arun Jaitley on Tuesday said the government's decision to tweak the presumptive income norms would reduce the tax liability by up to 30 per cent for those small traders opting for digital transactions.

He said in the Budget for 2016-17, small traders and businessmen, with turnover of up to ₹ 2 crore who did not maintain proper accounts, were presumed to have earned 8 per cent income or profit for tax purposes. But if they use digital mode of payments, their income will now be presumed to be 6 per cent of the turnover and not 8 per cent.

"So he will get a significant tax benefit. The object is if you do transactions using digital mode then you can pay less tax. It is a tax incentive to support digitisation of the economy. And if we calculate it, then some traders would get over 30 per cent tax advantage if he transacts through digital mode," Jaitley told reporters here.

Under the existing Section 44AD of the Income-Tax Act, 1961, in case of certain assessees (an individual, HUF or a partnership firm other than LLP) carrying on any business having a turnover of ₹ 2 crore or less, the profit is deemed to be 8 per cent of the total turnover for taxation.

"...it has been decided to reduce the existing rate of deemed profit of 8 per cent under section 44AD of the Act to 6 per cent in respect of the amount of total turnover or gross receipts received through banking channel/digital means for the financial year 2016-17," the Central Board of Direct Taxes (CBDT) had said on Monday in a notification.

The decision has been taken to achieve the government's mission of moving towards a less cash economy and to incentivise small traders/businesses to proactively accept payments by digital means, the CBDT said.

Following decision to demonetise old ₹ 500/1,000 notes, the government has taken several measures to encourage digital payments to promote less cash economy.

Presumptive taxation under Section 44AD reduced deemed profit for digital receipts, incentivising digital payments by small traders. Amendment reduces the deemed profit rate under Section 44AD from eight percent to six percent for the portion of turnover received through banking channels or digital means for the specified fiscal year, applying to eligible small business assessees and creating a tax incentive to promote digital payments and a less cash economy.