Introduction
As we all aware now a day’s Modi government has significantly encourage digital and cashless economy through:
1.1 Providing a online platform for various government services;
1.2 Demonetization, which extremely turns our economy towards cashless;
1.3 By giving incentives and disincentives under various laws for digital transaction;
1.4 By reducing the bank charges of Electronic fund transfer;
Why our Hon’ble Prime Minister focusing toward digitalization?
Why going cashless?
What are the benefits of a cashless economy:
2.1 It helps to track the flow of money and ensure a clear money trail which results into increase the government revenue and economic growth;
2.2 It helps to curb the corruption;
2.3 Reduce the expenditure on printing and carrying of currency notes;
2.4 Individual does not need to carry cash, which results in reducing the chance of crimes related to cash.
Everything which is beneficial to human being having its own Drawback:
3.1 It is very difficult to implement full cashless economy in India, where a relevant portion of society is illiterate and poor internet infrastructure in rural areas;
3.2 Risk of cyber fraud and online scams;
3.3 High dependency on phone, may create problem in case of Loosing of phone;
3.4 Overspending: its human tendency
Restrictions under the provisions of income tax act, 1961 (‘Act’) to discourage cash transactions:
1. Exemption of Income in the hands of political Parties – Section 13A
Section 13A, provides that all income received by Political parties shall not form part of its total income except income under PGBP (subject to certain conditions).
To discourage the cash transactions, Section 13A of the Act has been amended by Finance Act, 2017, and it has been provided that no donation exceeds Rs. 2,000 is received by political parties otherwise than by account payee cheque/ bank draft/ using Electronic Clearing System or through electoral bond.
2. Donations by companies / any person to political parties. – Section 80GGB / Section 80GGC
Section 80GGB/ 80GGC provides that any sum contributed by Companies / any other person to political parties shall be available for deduction from gross total income.
However, to discourage the cash transactions, section 80GGB/ 80GGC further provides that no deduction from GTI shall be available if payment is made by CASH.
3. Disallowances of Capital Expenditures, depreciation and investment allowances on cash payments – Section 35AD / Section 43(1).
Section 43(1) provides the definition of “Actual cost of capital assets” for the purpose of calculating depreciation, investment allowance and deduction under section 35AD of the Act.
Second proviso has been added to Section 43(1) of the Act by Finance Act, 2017 to discourage the cash transactions, which provides that no expenditure shall form part of actual cost of capital assets, if the payment for acquiring such assets has been made to a person in a day, otherwise than by account payee cheque/ bank draft/ using Electronic Clearing System exceeds Rs. 10,000.
4. Payments exceeds Rs. 10,000 otherwise than by account payee cheque or bank drafts etc is disallowed under Section 40A(3) and 40A(3A).
To discourage the cash transactions, Section 40A(3) of the Act, provides that no expenditure shall be allowed to Assessee if the payment for such expenditure has been made to a person in a day, otherwise than by and account payee cheque/ bank draft/ using Electronic Clearing System or through electoral bond exceeds Rs. 10,000.
Section 40A(3A) provides that if Assessee has claimed any expenditure in current year on accrual basis and the payment for such expenditure has been made by cash exceeds Rs. 10,000 in any succeeding year then such expenditure shall form part of total income of the Assesse in the AY when the actual payment has been made in cash.
5. Deduction in respect of Health Insurance Premium – Section 80D
Section 80D provides the deduction from gross total income in respect of expenditure of health insurance and preventive health check-up to individual and HUF.
To discourage the cash transactions, Section 80D of the Act, provides that no deduction shall be allowed to Assessee if the payment of insurance premium has been made, otherwise than by and account payee cheque/ bank draft/ using Electronic Clearing System or through electoral bond.
However, payment for preventive health check-up shall be allowed even if payment has been in cash.
6. Deduction of donation paid to charitable trust under Section 80G
Section 80G provides the deduction from gross total income in respect of donation made to charitable trusts.
To discourage the cash transactions, Section 80G of the Act has been provided that no deduction shall be available if payment of donation is made by otherwise than by and account payee cheque/ bank draft/ using Electronic Clearing System exceeds Rs. 2,000.
Erstwhile the above mentioned limit was Rs. 10,000, and the same has been substituted by Finance Act. 2017 to Rs. 2,000.
7. Donations for scientific research or rural development – Section 80GGA
Section 80GGA provides that an Assessee (other than an Assessee whose Gross Total Income includes income chargeable under the head “profits and gains of business or profession”) is entitles to deduction in respect of certain donations for scientific, social or statistical research or rural development programme or for carrying out an eligible project or National Urban Poverty Eradication Fund shall be allowed (Subject to certain conditions).
However, to discourage the cash transactions, section 80GGA provides that no deduction shall be available if payment is made by CASH exceeds Rs. 10,000.
8. Deduction under section 80JJAA
Section 80JJAA provides deduction of 30% of additional employee cost incurred by the Assessee shall be allowed as deduction for 3 assessment years.
The Assessee who have income under head PGBP and liable to tax audit under section 44AB are entitles for deduction under Section 80JJAA.
To discourage cash transaction, no deduction under section 80JJAA is available, if Assessee made the payment of emoluments/salary otherwise than by prescribed banking channel i.e. account payee cheque/ bank draft/ using Electronic Clearing System, subject to certain exception.
9. Prohibition on acceptance of cash loans, deposits, etc. – Section 269SS
To discourage the cash transactions, Section 269SS has been inserted by Finance Act, 1986, which provides that no person shall accept any loan or deposit or “specified sum” from any other person otherwise than by prescribed banking channel i.e. account payee cheque/ bank draft/ using Electronic Clearing System, so that the aggregate from such person exceeds Rs. 20,000.
Here, “specified sum” means that any sum of money whether as advance or otherwise, in relation to transfer of an immovable property.
Exception to the above section:
This section is not applicable where any sum is received by:
i. The Government;
ii. Any banking company, post office or co-operative bank;
iii. Any corporation established by central government;
iv. Any government company;
v. Where both the lender and recipient of such loan/ deposit/ specified sum are having agriculture income and neither of them having any taxable income under income tax Act.
Contravention of section 269SS would attract the penalty equivalent to the amount of such loan or deposit, so taken or accepted, may be levied by the Joint commissioner under section 271D.
10. Prohibition on repayment of loans or deposits in cash – Section 269T
Similar to section 269SS, section 269T provides that no person shall repay any loan or deposit (including interest) to any other person otherwise than by prescribed banking channel i.e. account payee cheque/ bank draft/ using Electronic Clearing System, exceeds Rs. 20,000.
Exception to the above section:
This section is not applicable where any sum repays to:
i. The Government;
ii. Any banking company, post office or co-operative bank;
iii. Any corporation established by central government;
iv. Any government company;
Contravention of section 269T of the Act would attract the penalty equivalent to the amount repaid, may be imposed by the Joint commissioner under section 271E of the Act.
11. Restriction on Cash Transactions – Section 269ST
In order to discourage cash transaction, a new section 269ST has been inserted in the Income Tax Act, 1961 by Finance Act, 2017.
Section 269ST prohibits the receipt of an amount of Rs. 2 lakh or more by a person,
i. In aggregate from a person in a day or
ii. In respect of a single transaction or
iii. In respect of transactions relating to one event or occasion from a person.
Otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account.
It is applicable to all person, whether the recipient is a seller of goods or a service provider or transfer or of capital assets or any other person.
However, provisions of section 269ST shall not apply to any receipt by:
i. Government/ any banking company, post office savings bank or co-operative bank;
ii. Transactions of the nature referred to in section 269SS – i.e. acceptance of Loan, deposits etc;
iii. Such other persons or class of persons or receipts etc. that may be notified by the Central Government;
iv. Any corporation established by a Central, State or Provincial Act;
It is further clarified that the receipt of one installment of loan repayment in respect of a loan shall constitute a ‘SINGLE TRANSACTION’ as specified in clause (b) of section 269ST of the Act and all the installments paid for a loan shall not be aggregated for the purposes of determining applicability of the provisions section 269ST.
Failure to comply with section 269ST would attract the penalty under section 271DA of the Act, equivalent to the amount receipt in cash.
12. TDS on cash withdrawals to discourage cash transaction
In order to discourage cash transaction, a new section 194N of the Act has been inserted by finance Act, 2019, to provide for a levy of TDS @2% on cash payments in excess of Rs. 1 Crore in aggregate made during the year, by a banking company or co-operative bank or post office to any person from an account maintained by the recipient.
Incentives under the provisions of income tax act, 1961 (‘Act’) to encourage cashless economy:
1. Benefit of digital payment for Assessee coved under section 44AD:
Section 44AD is a tool of easy tax compliances for small trader.
Provisions of section 44AD of act, provides for a presumptive income scheme in case of individuals, HUFs and firms except LLPs carrying out trading businesses having total turnover or gross receipts not exceeds Rs. 2 crores in a previous year, a sum equal to 8% of the total turnover or gross receipts deemed to be his business income chargeable to tax under the head “profits and gains of business or profession”.
To encourage digital payment, Section 44AD has been amended by Finance Act, 2017, provides for a lower presumptive profit rate of 6% on turnover realized in account payee cheque or DD or electronic clearing system through a bank account on or before due date for filing Income Tax Return.
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