Suggestions on Clause 83 of Finance Bill 2017- Section 269ST- Restriction on cash transactions –Certain concerns to be addressed
In order to achieve the mission of the Government to move towards a less cash economy to reduce generation and circulation of black money, the Finance Bill 2017 proposes to insert section 269ST in the Act to provide that no person shall receive an amount of three lakh rupees or more,—
(a) in aggregate from a person in a day; or
(b) in respect of a single transaction; or
(c) in respect of transactions relating to one event or occasion from a person,
otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account.
(i) The phrase “transactions relating to one event or occasion” is very subjective and prone to multiple interpretations and may result in avoidable litigation. Receipts exceeding Rs. 3 lakhs in respect of transactions relating to one “event or occasion” from a person is Say for example, if salary/ wages is paid in cash to supervisor/ consultant every month such that yearly aggregate exceeds threshold limit of Rs. 3 lakhs, tax authorities may argue that such receipt is covered by section 269ST since payment of salary constitutes one event or occasion even though payments might have been disbursed monthly and raise a demand notice. Hence, it may be suggested that third limb of “event or occasion” should be explicitly kept out of the scope to avoid any litigation and protect honest taxpayers. Similar controversy may also arise in case of second limb which covers receipt in respect of a “single transaction”.
It is suggested that suitable clarificatory guidelines may be issued to illustrate the intent of the phrase “transactions relating to one event or occasion from a person”. In the alternative, clause (c) may be removed.
(ii) Some exceptions on the lines of Rule 6DD need to be As per literal interpretation, even though receipt by banking company is permitted, withdrawal of cash from bank may be sought to be covered; payment of fund amongst relatives, say for household expenses or medical emergencies, is not exempted; money received may have been deposited into the bank the same day and yet it may be considered as a case of default, settlement of debt by book entry or conversion of loan into equity may also stand covered since it does not strictly fall within the specified modes mentioned above.
Exceptions on the lines of Rule 6DD may be provided.
(iii) The Finance Minister, in his budget speech has mentioned that promotion of a digital economy is an integral part of Government’s strategy to clean the system and weed out corruption and black money. It has a transformative impact in terms of greater formalisation of the economy and mainstreaming of financial savings into the banking system.
Accordingly, the Finance Bill 2017 has, introduced provisions encouraging payment through electronic clearing system like, section 13A, section 35AD, section 40A etc. Further in section 269ST also, receipt in excess of Rs.3 lakh otherwise than by way of account payee cheque or account payee bank draft or use of electronic clearing system (ECS) through a bank account is not permissible and would attract penal provisions.
It is pertinent to note that debit cards, credit cards and e-wallets are being widely used to make payments and these instruments leave an audit trail. However, technically, they do not fall within the scope of “Electronic Clearing System” as per the meaning of the said term clarified by RBI through its FAQs given at https: / / www. rbi. org. in / Scripts / FAQView. aspx?I d = 55 and reproduced below –
“Electronic Clearing Service (ECS) is an electronic mode of payment / receipt for transactions that are repetitive and periodic in nature. ECS is used by institutions for making bulk payment of amounts towards distribution of dividend, interest, salary, pension, etc., or for bulk collection of amounts towards telephone / electricity / water dues, cess / tax collections, loan instalment repayments, periodic investments in mutual funds, insurance premium etc. Essentially, ECS facilitates bulk transfer of monies from one bank account to many bank accounts or vice versa. ECS includes transactions processed under National Automated Clearing House (NACH) operated by National Payments Corporation of India (NPCI).”
It is suggested that payment made through banking channels, including debit cards, credit cards and e-wallets, may be permitted under the various provisions of the Income-tax Act, 1961. Alternatively, ECS may be specifically defined in the Income-tax Act, 1961 to include reference to these modes of payment.
(iv) The expression, ‘amount’ has been used u/s 269ST whereas the expression ‘sum’ has been used u/s 271DA, which may create confusion and result in avoidable
It is suggested that a uniform expression, ‘amount’ or ‘sum of money’ may be used at both the places i.e. under section 269ST as well as under section 271DA.
(v) In Note no. 83 of notes on clauses, the following amounts/ nature of transactions are proposed to be excluded: –
“Any receipt from sale of agricultural produce by any person being an individual or Hindu Undivided family in whose hands such receipts constitutes agricultural income “
This transaction has been inadvertently omitted from the list of exclusions proposed in section 269ST.
It is suggested that the above highlighted transaction as referred to in notes to clauses be excluded from the operation of section 269ST by suitably amending the proviso to section 269ST.
It is also suggested that the benefit of the above exclusion be not restricted only to individual and HUF but also to other assessee’s also who are deriving agricultural income only.
Source- ICAI Post-Budget Memoranda-2017