Say no to Cash Transaction- Benefits of Cashless Transactions

Introduction

We were told by history that before advent of cash there was concept of barter system. In barter system, where there was no currency ‘no cash’ and things were exchanged according to needs and sooner society realized that barter system having its own series of advantages and disadvantages need to be left behind with time and later on various personalities, kings and governments introduced new coins and currency made from time to time making impressions of their choice on such coins.

DIFFERENT STAGES OF EVOLUTION OF MONEY

These coins were also left behind after independence and baton was passed onto a new series of coins and currency. Its advantages were so overwhelming that disadvantages penetrated into the economy deeply and the crisp and clean notes soon turned into “BLACK MONEY”. Many schemes were introduced to dig out black money and many factors were responsible for widening of its feet in every nook and corner of the system. The question is “Why Black money is so bad”, there is a proverb which goes like, “thief leaves behind some sort of evidence after theft” but cash is wittier than this thief it does not leave behind any trail of its source of origination, whether it comes from a legal source or not, or whether taxes have been paid on it or not, etc. These problems have given birth to the need of cashless economy.

WHY CASH IS LIKED BY MOST OF THE PEOPLE?

• It improves buying ability as it doesn’t require any authorization for the person who is carrying it.
• Transactions are much faster and hassle free.
• There are not transaction charges as well. So we end up paying the exact amount.
• It can be kept as reserves which can be used easily at the time of crisis.
• It is easy to carry.
• No dependency on any hardware.
• Cash is the anonymity and the lack of a transaction record.
• Tax evasion becomes easier

Cashless Economy is not possible since cash to economy is like what blood is to human body, it will standstill, government can introduce various ways to restrict its usage thus reducing after effects of cash transactions but it cannot pull it out of the system and throw away in an instant. Moving further let us understand what is a Cash Transaction? In lay man language, a financial transaction with immediate exchange involving physical money and not soft money. For instance I went to a Showroom bought a watch for Rs.50,000/- and paid through debit card it is not a cash transaction since it involved payment through banking channel but if I had paid through hard physical money, the cash element has come into picture and thus the transaction is a cash transaction and then the legal consequences follow, that my information will be sent to Income Tax Department or not depending on the size of transaction or whether I will have to give my PAN to seller, etc. which we will see in detail in the upcoming chapters.

But the best way to reduce corruption and black money in the economy is to move from an informal economy predominantly dependent on cash, to electronic transfers. This will require universal banking accessibility.

FLAWS IN CASH TRANSACTIONS.

BLACK MONEY AND CORRUPTION–In India, black money is funds earned on the black market, on which income and other taxes have not been paid. Also, the unaccounted money that is concealed from the tax administrator is called black money. The black money is accumulated by the criminals, smugglers, hoarders, tax-evaders and other anti-social elements of the society.

IN OTHER WORDS

Black money is that quantum of income which was not disclosed to government and hence no tax was paid, although the source is legal. Black money becomes white and legal if tax and penalty at the prevalent rate is paid. Corrupt money is the money obtained by bribes. The source is also illegal and it can’t become legitimate by paying tax.

 IMPACT OF CASHLESS TRANSACTIONS ONCORRUPTION

• No corruption, No Black Money: Through cashless transactions, details of every transaction is maintained. Payments done by every individual can be easily traced.
• No fake Money: One of biggest advantage would be totally eliminating fake currency.
• Ensures Payment of taxes: As every single penny you own is counted, so it will be difficult to evade taxes.

 SOME ADVANTAGES OF CASHLESS TRANSACTIONS

1. The first and foremost advantage of cashless economy is that an individual does not need to carry cash with him or her everywhere which in turn reduces the chances of theft from wallet, reduces inconvenience due to carrying cash, give freedom from problem of change when transaction is of odd amount, no risk of receiving counterfeit currency and so on.

2. Another benefit of cashless economy is that it is easier to track the black money and illegal transactions because if cash is used directly for doing transactions then it is not easy to track the transactions as the money does not come into the banking system. However in case of digital transactions, it is easy to track the transaction as all records are there with the banks which result in more transparent transactions which in turn lead to fall in corruption in the economy of the country.

3. Another advantage of cashless economy is that since all transactions will be done through organized channel that is through banks and financial institutions it results in increase in tax revenue for the government as all cash transactions which were done illegally come into banking system which in turn helps the government in tracking all transactions and levying tax on them which in turn can be used by the government for betterment of economy of the country.

In a bid to curb black money as well as to limit the number and amount of cash transactions, the government has come out with some new provisions and related rules and prohibited some types of cash payments in the Finance Acts. E.g sec 269ST has been inserted by Finance Act, 2017 which aims to restrict cash transactions of Rs. 2 Lakhs or above. It is irrelevant whether the person receiving the specified sum in cash is assessed to income tax or not.  It is also irrelevant as to what is his source of income e.g salary, rent, business, agricultural income or any exempt income. The restrictions would apply to receipt of fees by educational institutions, hospitals and to donations by temples etc. It would apply to transactions between two related persons or between such persons – where both the payer and the payee are exempt from payment of tax. In a lighter vein, it may be stated that even if a husband pays specified amount of cash to his wife for household expenses, the receipt in the hands of the wife would be covered by the impugned restrictive provision. 

The effects of other restrictions under provisions of income tax act are as follows:

• Restrict cash transactions which results in disallowances of expenses or deductions under chapter VIA of Income Tax Act, 1961 in computation of taxable income and allowing deduction to provide incentive for better compliance.
• Penalizing cash transactions above threshold limit to create effective deterrence.

We can explain the restrictions on cash payment and deductions with the help of the following pictoral representation:

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