1. Background:

Reducing Indian economy’s dependence on cash is desirable for a variety of reasons. India has one of the highest cash to gross domestic product ratio in the word, and lubricating economic activity with paper has costs. Also, a shift away from cash will make it more difficult for tax evaders to hide their income, a substantial benefit in a country that is fiscally constrained. To be sure, the government on its part is working at various levels to reduce the dependence on cash.

In this write up, the author has discussed the steps taken by Government to move our economy towards Less Cash economy.

2. Demonetization

With a view to curb financing of terrorism through the proceeds of Fake Indian Currency Notes (FICN) and use of such funds for subversive activities such as espionage, smuggling of arms, drugs and other contrabands into India, and for eliminating Black Money which casts a long shadow of parallel economy on our real economy, Government cancelled the legal tender character of the High Denomination bank notes of Rs.500 and Rs.1000 denominations on November 8, 2016

3. Digitization and Incentivization

After demonetization to promote the digital payments, Government had taken many measures by way of prize awards, discounts, rebates, lower tax rate on receiving the digital payments etc.

Pay Digital and Win Prizes! As India moves towards a digital and cashless economy, the Government announced on 15th December, 2016 two schemes Lucky Grahak Yojana and Digi-DhanVyapar Yojana to give cash awards to consumers and merchants who utilize digital payment instruments for personal consumption expenditures. The prizes range from Rs 1000 to Rs 1 crore and the transactions permitted were from Rs 50 to Rs 3000 to keep the focus on the common man. The schemes gave boost to cashless transactions particularly brought the poor, lower middle class and small businesses into the digital payment fold, and new way of life.

Government reduced the presumptive profit u/s 44AD of the Income Tax Act, 1961 from 8% to 6% in case of digital payment received by the Assessee.

4. Measures taken under Income Tax Act, 1961 to discourage cash transactions

In order to achieve the mission of the Government to move towards a less cash economy and to reduce the generation and circulation of black money, the Government has taken many measures by amending the below mentioned provisions of Income Tax Act, 1961 through Finance Act, 2017 effective from 1 April 2017.

4.1 Section 13A

♥ To discourage cash transaction and to bring transparency in the source of funding to political parties, the following amendments have been made:

No donation of Rs. 2,000 or more is received otherwise than by an account payee cheque/draft/use of electronic clearing system through a bank account or through electoral bonds (No cash donation exceeding Rs. 2,000/-)

Income tax return to be filed u/s 139(1) – If return is not submitted (or if return is submitted belatedly), exemption u/s 13A will not be available.

4.2 Section 40A(3)/(3A)

♥ Under the existing provisions, expenditure incurred in cash exceeding Rs. 20,000 (in the case of payment to transport contractor, it is Rs. 35,000) is not allowable as deduction as per Section 40A(3) (few exceptions are given by rule 6DD)

In order to disincentivise cash transactions, section 40A(3) has been amended. The monetary limit of cash payment has been reduced to Rs. 10,000 (however there is no change in monetary limit for payment to transport contractor).

Amended in Section 40A(3A) – Section 40A(3A) is applicable if the taxpayer had claimed deduction in respect of an expenditure in any of the earlier years. Payment pertaining to such expenditure is made exceeding Rs. 20,000 during the current year by any other mode other than account payee cheque/bank draft etc.  This monetary limit has also been reduced to Rs. 10,000 from the assessment year 2018-19.

4.3 Disallowance of depreciation, investment allowance and capital expenditure under section 35AD on cash payment and Section 43(1)

Under current provisions, there is no provision to disallow the capital expenditure incurred in cash. To discourage cash payment for purchase of capital assets, section 35AD and section 43(1) have been amended with effect from the assessment year 2018-19 as follows:

4.4 Section 35AD

Any expenditure in respect of which a payment or aggregate payment made to a person in a day, otherwise than by cheque or bank draft or electronic clearing system exceeds Rs. 10,000/-, no deduction shall be allowed in respect of such payment under section 35AD.

4.5 Section 43

The following amendments have been made to Section 43(1)

♥  Actual cost – Actual cost not to include cash payment exceeding Rs. 10,000. Section 43(1) is amended to provide that where an assessee incurs any expenditure for acquisition of any asset in respect of which a payment or aggregate payment made to a person in a day, otherwise than by cheque or bank draft or electronic clearing system exceeds Rs. 10,000/-, such payment shall be ignored to determine the actual cost of such asset. It means no depreciation will be allowed on such payment.

4.6 Section 80G

Under the existing provisions of section 80G, deduction is not allowed in respect of donation made of any sum exceedingRs.10,000/-, if the same is not paid by any mode other than cash.

In order to provide cash less economy and transparency, section 80G has been amended so as to provide that nodeduction shall be allowed under the section 80G in respect of donation of any sum exceeding Rs. 2,000/- unless suchsum is paid by any mode other than cash.

4.7 Section 269ST and 271DA

♥ A new section 269ST has been introduced, no person (except banking company, Government, post office co-operative & other as may notify by Government) shall receive an amount of Rs. 2 lakh or more  –

(a) In aggregate from a person in a day;

(b) In respect of single transaction; or

(c) In respect of transactions relating to one event or occasion from a person

Contravention of above mentioned provision shall attract a penalty equivalent to the amount of such receipt under section 271DA unless such person proves that there were good and sufficient reasons for the contravention. Penalty under this section shall be imposed by the Joint Commissioner.

♥ This section impacts the payee and not the payer. It is the payee or recipient who is made liable for violation of section 269ST in the form of penalty u/s 271D

Examples in respect of applicability of Section 269ST

1) A sold goods to Mr. B vide invoice no 1/2017-18 of Rs. 10,00,000 dated 01-04-2017. Mr. B made the payment as follows:

a)_ 2,00,000 vide RTGS on 03-04-2017

b) 1,50,000 cash payment on 05-04-2017

c) 1,90,000 vide bearer cheque on 07-04-2017

d) 4,60,000 by account payee cheque on 11-04-2017

Implications for Mr. A

Mr. A has received the payment of Rs. 3,40,000 (1,50,000 [cash]+1,90,000[bearer cheque])  otherwise than by account payee cheque/draft/use of electronic clearing system through a bank. It is covered by section 269ST even if cash payment/bearer cheque payment in a single day is less than Rs. 2,00,000. The AO can impose the 100% penalty ofRs. 3,40,000 under section 271DA.

Mr. A received the payment exceeding Rs. 2,00,000 related to invoice no 1/2017-18, he is required to report this transaction in Form 61A ( Section 285BA), provided Mr. A is subject to tax audit.

2) A sold his Car to Mr. B for Rs. 2,50,000/- i.e. Rs. 50,000 token money vide Cheque and Rs. 2,00,000 in Cash on different dates.

Implications for Mr. A

Mr. A has received Rs. 2,00,000/- in cash for a particular transactions and hence section 269ST shall be applicable. The AO can impose the penalty u/s 271DA of 100% of the transaction involved.

Reporting under Form 61A shall be applicable provided Mr. A is subject to tax audit u/s 44AB of Income tax act, 1961 since amount received is Rs. 2,00,000 in relation to one sale.

Conclusion:

It is suggested to incur the expenditure through digital way to contribute towards fulfillment of the mission of the Government of a less cash economy. Digital payments help in proper maintenance of books of accounts and help in timely compliances. If cash payment is compulsory then above mentioned provisions should be carefully considered to avoid any tax consequence. 

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. The observations of the authors are personal view and this cannot be quoted before any authority without the written permission of the authors. This article is meant for general guidance and no responsibility for loss arising to any person acting or refraining from acting as a result of any material contained in this article will be accepted by authors. It is recommended that professional advice be sought based on the specific facts and circumstances.

(Authors – CA Neeraj Kumar and CA Deepak Arya, RAPG & Co. Chartered Accountants from Delhi and can be reached at info@rapg.in, 9999836182/9818449179)

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Tags : Budget (1473) Budget 2017 (351) Section 269ST (21)

19 responses to “BAN on Cash Transactions…!!! Finance Act 2017”

  1. Unnati says:

    1) A sold a product to Mr. B vide invoice no 1/2017-18 of Rs. 4,00,000 dated 19-04-2017. Mr. B made the payment as follows:

    a) 2,10,000 vide RTGS on 19-04-2017

    b) 1,90,000 cash payment on 19-04-2017

    Will this transaction come under sec 269ST and will penalty be attracted?

  2. Rudra says:

    Hi
    What’s the maximum amount that an assesse can donate in cash who doesn’t want to avail 80g??

    Thanks in advance

  3. Anit Mitra says:

    I m an accountant and I need to know the followings:
    1. Cash Sale Memo/Invoice Limit? Is it levied tcs above 50000 -199999?
    2. Cash purchase for Resale goods?
    Thanks in advance
    Regards
    A.Mitra

  4. Amit Kr Mishra says:

    Income Tax Department vide its notification # 28/2017 has made it very clear whether withdrawals above Rs. 1,99,999.00 can be made from banks without attracting penalty under section 271D or not. Please have a look here

  5. jaiprakash says:

    i busnees westen union,money transfer, i cash payment daily 4lakh to 10 person,next day 4lakh deposit my bank,i cash withrol 4lkah by bank

  6. Shanu Gupta says:

    can we sale goods in cash in different dates of rs.200000/- or more (i.e different bills on different dates)? sec 271D attract or not?

    • Ashish Agrawal says:

      if cash bill raised amt of rs. 2.00 lakh or more on different dates then 271DA applicable.

      if cash bill generate less then 2.00 lakh & more different dates then not apply 271DA.

  7. jawahar navlani says:

    Does this cash limit imply that I can’t withdraw more than 2 lacs from my own savings account????
    Also plz clarify…..
    What if I withdraw exactly 2 lacs??? Penalty is above 2 lacs or 2 lacs and above????

    • Harish Chander Bhatia says:

      This would lead to absurd interpretation. The meaning in no way can be stretched to include bank and bank can not be included in the definition of word “person”, had this been the intention of the legislation, it would have been included the word “from any persons including any banking company”. As such withdrawal from bank is not covered under this section.The authors of various articles must adopt logical and practical approach of the provision, keeping in mind the rules of interpretation

  8. chandra kishore Vandhare says:

    who will be penalize if A sold goods by 50 bills for Rs 250000 to B and received whole amount by cash during the year 17-18

    • Shanu Gupta says:

      Receiver will be livable for penalty i.e Mr. A

      • shivashankaran says:

        Dear Sir, If a shop owner purchases consumer products from a distributor totaling Rs 250000 in an entire year through 50 bills and if he pays in cash on different days all the total outstanding amounts but not exceeding Rs 10000 payment as cash in a single day does this attract 269ST? Kindly clarify…

  9. VINOD KUMAR AGGARWAL says:

    WHAT ABOUT THE PAYMENT MADE TO A FARMER BY KACHCHA AADTIYA.

  10. M L Mittal says:

    Whether cash withdrawals of Rs.2.00 Lac and exceeds from current/C.C./OD account in a day is violation of section 269ST

    • Harish Chander Bhatia says:

      This would lead to absurd interpretation. The meaning in no way can be stretched to include bank and bank can not be included in the definition of word “person”, had this been the intention of the legislation, it would have been included the word “from any persons including any banking company”. As such withdrawal from bank is not covered under this section.The authors of various articles must adopt logical and practical approach of the provision, keeping in mind the rules of interpretation

  11. GANDHI MOHAN BHARATI says:

    Is it punishable to withdraw cash more than 2,00,000/- from his own Bank Account by an Individual ?

    • Harish Chander Bhatia says:

      This would lead to absurd interpretation. The meaning in no way can be stretched to include bank and bank can not be included in the definition of word “person”, had this been the intention of the legislation, it would have been included the word “from any persons including any banking company”. As such withdrawal from bank is not covered under this section.The authors of various articles must adopt logical and practical approach of the provision, keeping in mind the rules of interpretation

      • Ghanshyam Gupta says:

        In my view cash withdrawal of Rs. 2 Lac from bank
        is also violation of Sec 269ST because this section is applicable on recipient and banks in this case giving you money. Only bank, Government, and corporate banks are exempted from the provision of section 269ST as recipient.

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