Cash Transactions- Restriction & Measure under Income Tax

Cashless societies have existed from the time when human society came into existence. In olden days barter system existed which was cashless system of exchange. Cashless transactions have also become possible in modern times using digital currencies.Government is taking major steps to promote cashless economy. The main purpose is to generate high tax revenue, fight corruption and curb black money. Various taxation reforms have been introduced and certain cash transactions are not allowed as per Income-tax Act, 1961. Govt. has taken certain measures to reduce cash transactions. All about Cash Transactions is discussed below.

1. RESTRICTION ON ACCEPTING/REPAYMENT OF LOANS, DEPOSITS AND ADVANCE OF RS.20,000/- OR MORE IN CASH- This provision was inserted to counteract evasion of taxes. Taxpayers used to hide their income by saying that they have received loans from friends and relatives. This practice was giving rise to accumulation of black money. To curb these increasing cash transaction, provision was inserted as follows-.

a. Limit-As per provisions of Income-tax Act no person shall accept/repayloans, deposits and advance of Rs.20,000/- or more in cash. From 01/06/2015 cash transaction relating to immovable property is also not allowed whether transfer has taken place or not.

b. Exclusion-Banks, Post office and Govt. are allowed to accept or repay the amount in Cash. Also, Loan can be taken in cash if both the parties involved are having agricultural income and they do not have any income chargeable to tax.

c. Penalty-If any person violates the provision then Penalty=Amount of loan shall be levied. Penalty is not leviable if tax payer proves that there was reasonable cause for the failure.

f. Rulings-Transactions done with intention of not evading taxes are allowed. There are many case laws which supports this fact. Eg: Receiving cash from relative during emergency, partner contributing capital in Cash in his Partnership firm, receiving deposits from agriculturist who had no bank accounts, urgent business need forcing person to take cash loans for the purpose of honouring commitment, etc.

2. RESTRICTION ON RECEIVING RS.2 LACS OR MORE IN CASH –In order to achieve the mission of Govt. to move towards less cash economy and reduce generation and circulation of black money, the provision was inserted from 01/04/2017 that-

a) No person shall receive Rs.2 lacs or more in cash in aggregate from a person in a single day or in respect of single transaction or in respect of transaction relating to one event or occasion from a person. This provision is applicable only on receiver of cash and not on payer.

b) The restriction is not applied to Govt., banks and post office.

c) If any person violates the provision then Penalty=Amount of receipt shall be levied.

3. CASH DEPOSITS ABOVE 1 CR IN CURRENT ACCOUNT-From 1^st April 2020 if any person deposit cash exceeding 1 crore in his Current Accounts in a financial year, then it is mandatory for him to file return of income even if his income is below taxable limit. This provision was inserted to ensure that a person who enters into High Value Transactions do furnish their return of income.

4. CASH WITHDRAWALS FROM BANK-In order to discourage cash transactions and move towards less cash economy, Govt. levied TDS on cash withdrawal as follows-

a) If return of income for last 3 years has been timely filed-TDS @ 2% shall be deducted by banks and post office if any person withdraws cash of Rs.1 crore or more from his accounts.

b) If return of income for last 3 years has not been filed or is filed late- TDS@2% is levied if cash withdrawn is above 20 lakhs -1 crore. TDS@5% is levied if cash withdrawn is above 1 crore.

5. PAYMENT OF EXPENSES AND DONATION IN CASH-

a. Business payments-If any person makes payment of expenses in cash above Rs.10,000/- to a single person in a single day then deduction of expenses are not allowed while computing business income.

b. Payment for Capital Expenditure-If asset is purchased in cash then expenditure incurred on purchase of asset shall be ignored for purpose of computing Actual Cost of asset. Therefore depreciation will not be allowed if amount paid is not included in Actual cost of asset.

c. Payments made by Charitable Trusts and Institutions–The income of Charitable trust and Institutions are exempt from tax if income is applied for the purpose of formation of trust. From 1^st April 2019 Charitable and religious trust and institutions are also not allowed to make cash payments above 10,000/- to ensure proper verification of application of income and overcome the problem of lack of audit trail.

d. Disallowance of Investment-Linked deduction-In Income-tax Act deduction of capital expenditure is allowed which is incurred on setting up, building and operating of certain specified business like cold chain facility, inland container depot, hotel of two star and above, hospital with at least 100 beds, production of fertilizer, etc. If payment of expenditure is made in cash above Rs.10,000/- to a person in a day, then deduction of capital expenditure shall not be allowed.

e. Restricting Cash Donation–If any person donates more than Rs.2000/- in cash to registered trust and political party, then deduction of donation u/s 80G given shall not be allowed. Section 80GGA allows deduction for donation made towards scientific research or rural development. From 01^st June 2020 cash donation u/s 80GGA is also restricted to Rs.2000/-.

f. Restricting deduction in respect of employment of new employees-Deduction of an amount equal to 30% of additional employee cost incurred is given. But in case of existing business additional employee cost shall be nil if emoluments are paid in cash.

6. MEASURES TAKEN BY GOVT. TO REDUCE CASH TRANSACTIONS-

a) CORONAVIRUS– had asked banks to encourage customers to use digital payment methods instead of cash as a precautionary measure against the Coronavirus Outbreak via email, SMS and Social Media Platform explaining health benefits of adopting digital payments.

b) STAMP DUTY VALUE-In case of immovable property, if date of Agreement fixing the value of consideration and date of Registry are different than full value of consideration for transfer of such asset shall be the Stamp Duty Value on the date of Agreement provided amount of consideration or part thereof has been received through banking channel.

c) PRESUMPTIVE INCOME @6%-In case of Presumptive taxation Scheme, income is presumed as 8% of Turnover or Gross Receipts or higher as declared. In order to promote digital transactions and to encourage small unorganized business to accept digital payments income shall be computed @6% instead of 8% if turnover or Gross Receipts is received through banking channel.

d) MANDATORY ELECTRONIC MODES-From 1^st Nov 2019, if total sales of business exceeds Rs. 50 crore then it is mandatory to provide facility for accepting payment through electronic modes like Debit Card powered by RuPay, BHIM-UPI, BHIM-UPI QR Code in addition to other electronic modes of payment.Penalty of Rs.5000/- per day is levied for default.

e) NO AUDIT IN CERTAIN CASES-Every person carrying on business is required to get his accounts audited if turnover of the business exceeds Rs.1 crore. In order to reduce compliance burden and promote cashless economy the threshold limit is increased to 5 crores if aggregate of all receipts in cash during the previous year does not exceed 5% of such receipt and aggregate of all payments in cash during the previous year does not exceed 5% of such payment.

f) RE-OPENING OF CASES- In cases where Cash deposit made in bank account is 10 lakhs or more and return of income has not been filed or if filed income shown is not in line with cash deposited, cases are reopened for scrutiny.

OUR COMMENTS-

Govt. is taking every possible step to discourage cash transactions and is moving towards Cash less Economy. The main aim of Govt. is to reduce generation and circulation of black money, fight Corruption, increase its revenue and bring transparency into its system. Cash was the main medium through which person used to evade taxes. Promotion of digital transactions has helped Govt. in achieving its target. Now it is our turn to accept new era of digitization, promote transparency and pay taxes honestly.

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The above comments do not constitute professional advice. The Author can be reached at divyaagrawal203@gmail.com. My name is CA Divya Agrawal and I am Practising Chartered Accountant. I also upload educational videos in You tube and name of my channel is FINANCIAL TREE COMPANY. My aim is to help people in improving their financial health by spreading knowledge and love. Stay Healthy and Wealthy.