Say no to Cash Transactions- Income Tax Dept. Advises

(I)through the disallowing of expenses;

(ii) by reducing deductions under Chapter VIA in computing taxable income;

(iii)by incentivizing deductions under Chapter VIA for better compliance; and

(iv)by leveraging the thresholds above which tax audit is mandatory;

(v) by reducing the presumptive rate of tax

• No person shall accept in cash any loan or deposit or other specified sum if the amount(or the aggregate of the amount) involved total (s) to Rs. 20,000 or more.

° ‘Specified sum’ » any sum of money receivable, as advance or otherwise, in relation to the transfer of an immovable property, whether the transfer takes place ornot.

º The amount or the aggregate amount shall include any cash received earlier and remaining unpaid.

• The above mandate does not apply to sums as stipulated accepted from or by-

(a) the Government;

(b) a banking company, post office savings bank or co­operative bank (but not all co-operative societies whether or not involved in banking or related activities);

(c) a corporation established by a Central, State or Provincial Act;

(d) a Government company as defined in section 2(45)of the Companies Act, 2013;

(e) a notified institution, association or body (or class of institutions, associations or bodies).

• The mandate above is also not applicable if the payer and the payee are both earning agricultural income and neither of them has any income chargeable to tax under the Income-tax Act, 1961.

The penal consequence of violating the mandate above  Section 271D

imposition/levy on the recipient » a penalty = amount taken in cash

(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.

The mandate as above will apply to:

(i) receipt of fees by educational institutions and hospitals;

(ii)donations by religious institutions;

(iii)      transactions between two related persons or where both the payer and the payee are exempt from payment of tax.

• The mandate as above does not apply to:

(i) any receipt by the Government or any banking company, the post office savings bank or any co­operative bank [but not all co-operative societies whether or not involved in banking or related activities];

(ii) transactions of the nature referred to in section 269SS;

persons or class of persons or receipts as separately notified for the purpose.

The penal  consequence of violating mandate above

Imposition/levy on the recipient a penalty =amount received in cash

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• No branch of a banking company or a cooperative bank;
• No other company or cooperative society; or
• No firm or other person

will repay in cash any loan or deposit or any specified  advance if the amount (or the aggregate amount) involved with the applicable interest totals Rs. 20,000/- or more.

o  tpecified advance’ means any sum of money in the nature of advance, by whatever name called, in relation to the transfer of an immovable property, whether or not the transfer has taken place.

o  The aggregate amount shall include amounts held by the person in his own name or jointly with any other person on the date of such repayment.

The mandate as above shall not apply to repayment of any loan or deposit or specified advance taken or accepted from:

(a) the Government;

(b) any banking company, post office savings bank or co­operative bank [but not all co-operative societies whether or not involved in banking or related activities];

(c) any corporation established by a Central, State or Provincial Act;

(d) any Government company as defined in Section 2(45) of the Companies Act, 2013.

(e) notified institution, association or body or class of institutions, associations or bodies.

The penal consequence of violating the above mandate Section 271E

Imposition/levy on the repayer a penalty =amount repaid in cash

Category A(ii);provision of penal Nature Setting of Thresholds for facilities Prescribed Electronic Modes

• Applicable to every person with a business turnover, sales or gross receipts exceeding Rs. 50 crores with exception available only to:
• a person:
• having only B2B transactions; and
• whose aggregate of all amounts received through non-cash modes during the previous year, including the amount received for sales, turnover or gross receipts, constitute at least 95% of all amounts received;
• an assessee which is 100 percent export-oriented; or
• a foreign company carrying on the business in India through a Permanent Establishment(PE)
• Needs to mandatorily facilitate the acceptance of payments through prescribed electronic modes (in addition to any facility for payments through other electronic modes) as prescribed by the CBDT which currently are [Refer Rule 6ABBA]
• Credit Card and Debit Card;
• Net Banking;
• IMPS(Immediate Payment Service)and NEFT(National Electronic Funds Transfer);
• UPI (Unified Payment Interface) and RIGS (Real Time Gross Settlement), and
• BHIM (Bharat Interface for Money)Aadhar Pay.
• The penal consequence of violating the above manded Section 271DB

Penalty=Rs. 5000/-for every day during which such failure continues

• NO DONATION exceeding Rs. 2000/- is received in cash by such Political Party.
• Tax Exemption not available to the Electoral Trust if the above mandate violated.

Category A(iv): Provisions of Penal Nature The Deeming of Income

Where any amount is borrowed on a hundi from, or any amount due thereon is repaid to, any person in cash, such amount is deemed to be income of the person borrowing or repaying the amount in the financial year of borrowing or repayment.

Deemed Income of business or profession if the payment towards expenditure incurred in one year is  made in cash in the subsequent year  Section 40A(3A)

• If or profession in which the payment (or aggregate of deemed to be the Profits and Gains of business or profession chargeable to income-tax as income of such subsequent year;
• In case the payment is being made for plying, hiring or leasing goods carriages, then the aforesaid limit will be Rs. 35,000.

Exceptions to the above include payments made by purchasers to th cultivators of agricultural produce.

NB: Quoting PAN and furnishing Form No. 60 under Rule 1146 do not apply to sale transactions of Rs. 2 lakh or less of agricultural produce.

• will not be included in determining the actual cost of such asset;
• No depreciation will be available on such capital expenditure paid in cash.

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• Upon satisfying certain conditions, the persons engaged in the specified business are eligible for deduction @100% (weighted deduction @ 150% in a few cases) of the capital expenditure incurred wholly and exclusively towards such specified business.
• No deduction as above will be allowed on a payment or aggregate of payments made towards such expenditure in cash exceeding Rs. 10,000 on any given day.

Category B(ii): Restriction Cash Transactions Reducing Deduction under chapter VIA

Donations made to certain funds, charitable institutions etc., are deductible under Section 80G. To avail of this benefit, any such sum exceeding Rs. 2000/- needs to be paid in any mode other than in cash.

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• Indian companies; and
• Other persons(other than a local authority or every artificial juridical person wholly or partly funded by the Government)
• for contributions made in non-cash mode to any political party or an electoral trust.

NO deduction as above is allowed for any contribution made in cash.

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• Subject to certain conditions, a deduction of an amount equal to 30% of the costs incurred towards additional employees is allowed.
• No deduction will be allowed towards the above for payments made in cash

Category B(iii): Restricting Cash Transaction (Incentivising Deduction under premium Section 80D(2B)

Category B(iv): Restriction Cash Transaction Leveraging Tax Audit Thresholds

• The threshold floor mandating Tax Audit fora business is Rs.10 crores provided that:

(i) Aggregate receipts in cash in a year do not exceed 5% of the total; and

(ii)Aggregate payments in cash in a year do not exceed 5% of the total

Until the AY 2021-22, the above threshold was Rs. 5 Crore if the above criteria were satisfied. The normal threshold for the tax audit of a business is otherwise Rs.1Crore.

Category B(V): Incentivizing cashless Transaction Reducing the Presumptive Rate of Tax

The amount may be received during the previous year or before the due date of filling of the Return of income under Section 139(1).

Category C: Applying Text Deductibility at Source (TDS) Withdrawals/Payment in Cash

• TDS @ 2% is applicable on cash withdrawals made above Rs.1 crore from banks;
• co-operative societies carrying on the business of banking;
• the post office
• However, if a person has not filed Returns of Income for 3 assessment years relevant to 3 previous years for which the respective time limits under Section 139(1) have expired, the applicable TDS will be:
• 02% on cash withdrawals totaling between Rs. 20 lakhs and Rs.1crore; and
• 05% on cash withdrawals exceeding Rs. 1 crore.

• Any individual/HUF paying any sum exceeding Rs 50,00,000 in a year to a resident:
• towards work or labour contracts or
• by way of fees for professional services rendered will have to deduct TDS at 5%

The above will apply whether or not the payments are made in cash, on credit or through non-cash channels

Category D: Mandating the filling of Returns of Income

• Applies to an Individual, HUF, Association of Persons, Body of Individuals, Artificial Juridical Person who in any mode including in cash
• Deposits Rs.1 crore or more in current accounts;
• Incurs Expenditure on foreign travel in excess of Rs. 2 lakhs;
• Incurs expenditure on the consumption of electricity of more than Rs.11akh
• penal consequence of a non-filer of a Return of Income before prescribed due date
• penal consequence of a non-filer of a Return of Income before prescribed due date _{Section 234F}

imposition/levy on the repayer » a fee = Rs. 50W

• and  penal interest and other impositions and actions under the statute.