CMA Navneet Kumar Jain

The government has dedicated one specific portion in the budget to usher in new era of economy with less cash (not cashless). The budget included many provisions which touched upon cash transaction in one or the other way. The days does not seem to be far away our economy will be moving through the wheels of banking systems not the cash systems as is the case now

Some the important provisions of the Budget which may have impact on the day-to-day working of the organizations which deal in cash are given below:

1) Donation in cash must not exceed Rs 2000/- for claiming benefit under Sec 80G

2) Capital expenditure through  Cash disallowed: Disallowance of depreciation under section 32 and capital expenditure under section 35AD on cash payment.

3) Limit on Daily Cash payment restricted to Rs 10000/- to a person in a day

4) Reduced Tax rate for transacting in modes other than cash for small businessman at 6% instead of 8%

5) Restrictions on cash receipt exceeding Rs 3 lacs for digitized economy (New section 269ST proposed)

1) Donation in cash must not exceed Rs 2000/- for claiming benefit under Sec 80G (Restricting cash donations upto Rs 2000/-)

It is normal for any person to give donation in cash but one needs to be careful, if one wants deduction under section 80G and must keep the donation amount under Rs 2000/- in cash.  Under the existing provisions of section 80G, deduction is not allowed in respect of donation made of any sum exceeding Rs.10,000, if the same is not paid by any mode other than cash.

In order to provide cash less economy and transparency, it is proposed to amend section 80G so as to provide that no deduction shall be allowed under the section 80G in respect of donation of any sum exceeding two thousand rupees unless such sum is paid by any mode other than cash.

This amendment will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent years.

2) Disallowance of depreciation under section 32 and capital expenditure under section 35AD on cash payment

We are in habit of circumventing the law and use/read the provisions as per our own convenience.

The government had put a limit on revenue expenditure in cash which is incurred in small portions and where the expenditure is of capital nature and amounts are huge, there was no such restriction. The government has proposed to disallow any capital expenditure incurred in cash. It means depreciation will not be available on that portion of expenditure.

Under the existing provisions of the Act, revenue expenditure incurred in cash exceeding certain monetary threshold is not allowable as per sub-section (3) of section 40A of the Act except in specified circumstances as referred to in Rule 6DD of the Income-tax Rules, 1962. However, there is no provision to disallow the capital expenditure incurred in cash. Further, section 35AD of the Act , inter-alia provides for investment linked deduction on the amount capital expenditure incurred, wholly or exclusively for the purposes of business, during the previous year for a specified business except capital expenditure incurred for acquisition of any land or goodwill or financial instrument.

In order to discourage cash transactions even for capital expenditure, it is proposed to amend the provisions of section 43 of the Act to provide that where an assessee incurs any expenditure for acquisition of any asset in respect which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft or use of electronic clearing system through a bank account, exceeds ten thousand rupees, such expenditure shall be ignored for the purposes of determination of actual cost of such asset.

It is further proposed to amend section 35AD of the Act to provide that any expenditure in respect of which payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account, exceeds ten thousand rupees, no deduction shall be allowed in respect of such expenditure.

These amendments will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent years.

3) Measures to discourage cash transactions: Limit reduced from Rs. 20000 to 10000

Existing Provision:

The existing provision of sub-section (3) of Section 40A of the Act, provides that any expenditure in respect of which payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, shall not be allowed as a deduction. Further, sub-section (3A) of section 40A also provides for deeming a payment as profits and gains of business of profession if the expenditure is incurred in a particular year but the payment is made in any subsequent year of a sum exceeding twenty thousand rupees otherwise than by an account payee cheque drawn on a bank or account payee bank draft.

Proposed Provision

In order to disincentivise cash transactions, it is proposed to amend the provision of section 40A of the Act to provide the following:

(i) To reduce the existing threshold of cash payment to a person from twenty thousand rupees to ten thousand rupees in a single day; i.e any payment in cash above ten thousand rupees to a person in a day, shall not be allowed as deduction in computation of Income from “Profits and gains of business or profession”;

(ii) Deeming a payment as profits and gains of business of profession if the expenditure is incurred in a particular year but the cash payment is made in any subsequent year of a sum exceeding ten thousand rupees to a person in a single day; and

(iii) Further expand the specified mode of payment under respective sub-section of section 40A from an account payee cheque drawn on a bank or account payee bank draft to by an account payee cheque drawn on a bank or account payee bank draft or use of electronic clearing system through a bank account.

These amendments will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent years.

4. Reduced Tax rate for transacting in modes other than cash for small businessman at 6% instead of 8%

The existing provisions of section 44AD of the Act, inter-alia, provides for a presumptive income scheme in case of eligible assesses carrying out eligible businesses. Under this scheme, in case of an eligible assessee engaged in eligible business having total turnover or gross receipts not exceeding two crore rupees in a previous year, a sum equal to eight per cent of the total turnover or gross receipts, or, as the case may be, a sum higher than the aforesaid sum declared by the assessee in his return of income, is deemed to be the profits and gains of such business chargeable to tax under the head “profits and gains of business or profession”.

In order to promote digital transactions and to encourage small unorganized business to accept digital payments, it is proposed to amend section 44AD of the Act to reduce the existing rate of deemed total income of eight per cent. to six per cent in respect of the amount of such total turnover or gross receipts received by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account during the previous year or before the due date specified in sub-section(1) of section 139 in respect of that previous year. However, the existing rate of deemed profit of 8% referred to in section 44AD of the Act, shall continue to apply in respect of total turnover or gross receipts received in any other mode.

This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent years.

5) Restrictions on cash receipt exceeding Rs 3 lacs for digitized economy (New section 269ST proposed)

The government wants lesser and lesser cash transactions so that so called parallel economy gets destroyed and has started taking steps in this direction.

In order to achieve the mission of the Government to move towards a less cash economy to reduce generation and circulation of black money, it is proposed 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;

(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.

It is further proposed to provide that the said restriction shall not apply to Government, any banking company, post office savings bank or co-operative bank. Further, it is proposed that such other persons or class of persons or receipts may be notified by the Central Government, for reasons to be recorded in writing, on whom the proposed restriction on cash transactions shall not apply. Transactions of the nature referred to in section 269SS are proposed to be excluded from the scope of the said section.

It is also proposed to insert new section 271DA in the Act to provide for levy of penalty on a person who receives a sum in contravention of the provisions of the proposed section 269ST. The penalty is proposed to be a sum equal to the amount of such receipt. The said penalty shall however not be levied if the person proves that there were good and sufficient reasons for such contravention. It is also proposed that any such penalty shall be levied by the Joint Commissioner.

It is also proposed to consequentially amend the provisions of section 206C to omit the provision relating to tax collection at source at the rate of one per cent. of sale consideration on cash sale of jewellery exceeding five lakh rupees.

These amendments will take effect from 1st April, 2017.

Source: Finance Bill 2017, Memorandum

In case of any clarifications, please feel free to contact us at navneetic@yahoo.com

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