In order to curb cash transactions and to move into the digital world, Government of India has introduced Demonetization of old notes of Rs. 500 & Rs. 1000 from 8th November 2016 in order to control the parallel world of black market.
Further, Government has also initiated various steps through various laws in India including Benami Transactions (Prohibition) Act, Black Money (Undisclosed Foreign Income & Assets) Act, Income-tax Act etc to control the cash transactions which are explained below.
Benami Transactions (Prohibition) Act, 2016
As per section 2(8) of the Act, benami property means any property which is the subject matter of a Benami transaction and also includes the proceeds from such property”.
Further, as per section 2(9), benami transaction means a transaction or an arrangement where a property is transferred to or is held by a person and the consideration for such property has provided or paid by another person and as per section 2(26), property means every kind of asset including movable, immovable, tangible or intangible and where the property is capable of conversion into some other form like cash, then the property in the converted form would also cover under the definition of property for the purpose of this Act.
Therefore, cash available in the possession of the person or proceeds from the sale of property received in the form of cash through the arrangement which is covered under benami transaction will also be covered under the definition of benami property.
Further, as per the press release dated 24.05.2017 issued by CBDT, it has also been informed that more than 400 benami transactions are identified upto 23.05.2017 which includes deposits in bank accounts, plot of land, flat and jewellery.
Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015
The main reason behind the introduction of Black Money (Undisclosed Foreign Income & Assets) Act is to curb & identify the illegitimate source for acquisition & holding of foreign assets & earning foreign income which has not been disclosed to the tax authorities in India. This leads to tax evasion in India which results in heavy taxes including interest & penalty on the taxpayers.
As per the Financial Action Task Force (FATF) report published in October 2015, various illegitimate means including vehicles, aircrafts, parcel, baggage, physical borders are used for transporting cash outside the country which is not disclosed to the tax authorities which is subsequently used to invest in assets and earn income from such assets outside the country. Hawala is also a method to remit money outside the country without physical transfer of cash through illegal means.
Provisions contained in various sections under Income-tax Act, 1961
1. Section 40A(3) & 40A(3A) [Expenses or payments not deductible in certain circumstances] – Where the assessee has made payment or aggregate of payments made to a person in a day in respect of expenditure incurred otherwise than by an account payee cheque or account payee bank draft or through electronic clearing system exceeding Rs. 10,000 subject to rule 6DD, no deduction will be available in respect of such transaction. Further, where any allowance has been made in respect of an liability incurred for any expenditure and subsequently during any previous year, the assessee makes payment in mode other than specified exceeding Rs. 10,000, no deduction will be available in respect of such transaction.
2. Section 43(1) [Actual Cost in respect of an Asset] – Where the assesse incurs any expenditure for acquisition of any asset or part thereof in respect of which a payment or aggregate of payments made to a person in day otherwise than by an account payee cheque or account payee bank draft or through electronic clearing system exceeding Rs. 10,000, such expenditure shall not be included purpose of determination of actual cost of the asset.
3. Section 44AB [Audit of accounts of certain persons carrying on business or professions] – As per clause (a), every person carrying on business shall if his total sales, gross receipts or turnover exceeds Rs. 1 crores required to get his accounts audited by a Chartered Accountant.
Further, if the aggregate of amounts received including amount received for sales, turnover or gross receipts during the previous year in cash does not exceed 5% of said amount and aggregate of all payments made including amount incurred for expenditure in cash during the previous year does not exceed 5% of the said amount, then Rs. 10 crores limit will be applicable against Rs. 1 crores in order to get his accounts audited by a Chartered Accountant. Therefore, in order to keep track of transactions entered through digital mode, CBDT has raised the limit of tax audit to Rs. 10 crores.
4. Section 44AD [Special provisions for computing profits and gains of business on presumptive basis] – As per sub-section (1), in the case of eligible assessee doing eligible business, a sum equal to 8% or higher amount of total turnover or gross receipts of the assessee in the previous year on account of such business shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”.
Provided that in respect of turnover of gross receipts which is received by an account payee cheque or account payee bank draft or through use of electronic clearing system during the previous year or before the due date specified in section 139(1) in respect of that previous year, the words 6% will be substituted in place of 8% in sub-section (1).
5. Section 80D [Deduction in respect of health insurance premia] – No deduction shall be available in respect of health insurance premium paid through cash in respect of self including family and parents. Further, amount of preventive health checkup can be paid in cash.
6. Section 80G [Deduction in respect of donations to certain funds, charitable institutions, etc] – Deduction in respect of donations made in cash exceeding Rs. 2,000 is not available.
7. Section 80GGB [Deduction in respect of contributions given by companies to political parties] – No deduction shall be available in respect of contribution made in cash.
8. Section 80GGC [Deduction in respect of contributions given by any person to political parties] – No deduction shall be available in respect of contribution made in cash.
9. Section 194N [Payment of certain amounts in cash] – Every person being a banking company, co-operative society or post office who is responsible for paying amount or aggregate of amounts in cash exceeding Rs. 1 crore during the previous year to any person shall at the time of such payment deduct TDS at the rate of 2%.
Further, in case of recipient who has not filed the Return of Income for all three assessment years u/s 139(1) for which time period has expired, TDS is required to be deducted at the rate of 2% for payment exceeding Rs. 20 lakhs and upto Rs. 1 crore and 5% for payment exceeding Rs. 1 crore.
10. Section 269SS [Mode of taking or accepting certain loans, deposits and specified sum] – No person shall take or accept from any other person any loan or deposit or any specified sum [specified sum means any sum of money receivable whether as advance or otherwise, in relation to transfer of an immovable property, whether or not the transfer take place] other than account payee cheque or account payee bank draft or through electronic clearing system, where the amount or the aggregate of amounts exceeds Rs. 20,000. Further, If the assessee does not comply with provisions of section 269SS, a penalty u/s 271D can be imposed by the Joint Commissioner equals to the amount of loan or deposit or specified sum taken or accepted.
11. Section 269ST [Mode of repayment of certain loans or deposits] – No branch of a banking company or a co-operative bank and no other company or co-operative society and no firm or other person shall repay any loan or deposit made with it or any specified advance received by it otherwise than by an account payee cheque or account payee bank draft or through electronic clearing system, where the amount or the aggregate of amounts exceeds Rs. 20,000. Further, If the assessee does not comply with provisions of section 269SS, a penalty u/s 271E can be imposed by the Joint Commissioner equals to the amount of loan or deposit or specified advance so repaid.
12. Section 269T [Mode of undertaking transactions] – No person shall receive an amount of Rs. 2 lakhs or more in aggregate from a person in a day in respect of one event or occasion from a person otherwise than account payee cheque or account payee bank draft or through electronic clearing system. Further, If the assessee does not comply with provisions of section 269ST, a penalty u/s 271DA can be imposed by the Joint Commissioner equals to the amount of receipt.
Disclaimer – Above article is only meant for educational purpose. Kindly consult a competent person before taking any view on the basis of above article and the author is not responsible for any views taken on the basis of above article.
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