Say No To Cash

Introduction:

The shift towards a Cashless economy is strongly debated among Central Governments, Central Banks, and Financial Experts. Indeed the proliferation of new mobiles and instruments brings a revolution to the nature of the payment landscape. Well, Government strongly argues for a digital economy because they think that this will help to control tax evasion and money Laundering as there will be less scope for tax evasion. It would certainly benefit the economy in the following ways:

1.At present our economy is cash-based as it allows fraudsters to enter black money easily

2.Fake currency notes are smuggled from outside countries this will also reduce the digital economy

3.The major benefit is Control of Tax Evasion as people will pay their expenses through the bank so they can be checked whether it is liable to tax or not.

4.Digital Economy shall bring transparency to transactions.

There are also provisions in Income Tax Act 1961 that promotes a cashless economy. Let’s discuss this in detail.

1. Donation Received by Political Parties (13A(d)):  Since Political Parties in India can receive donations only in electronic forms like Account Payee cheques, Bank Draft, and Electoral Bonds. However, the exemption provided up to Rs. 2000 can be received in cash. This cash benefit can be availed by individuals giving donations u/s 80GGC. In case companies give donations to political parties the whole amount must be in electronic form only then deduction can be availed u/s 80GGB.

2. Expenditure for Specified Business( 35AD(8)(f) ): Under this section all revenue and capital payments made in respect of specified business shall be allowed as deduction. However if capital payment is made in cash exceeding Rs.10000 then the whole amount paid in cash shall not be allowed as a deduction.

3. Payments not deductible in certain circumstances ( 40A(3) ): if the assessee incurs any expenditure in which the total of payment exceeds Rs.10000 per day, per person otherwise then Account Payee cheque, Bank Draft then that payment shall not be allowed as deductible Expense. However, there are certain exceptions like payments made to the government either in the form of taxes or for purchasing something, payments made to LIC, RBI, Agriculture Society, Land mortgage banks, etc.

4. Expenditure incurred on Actual Cost  43(1) ): This section talks about the actual cost of the asset in different situations but if any payment is made towards the cost of acquisition otherwise than by electronic mode exceeding Rs. 10000 then that payment will not form the part of Actual Cost of Asset.

5. Payment of Health Insurance Premium (80D(2B): This section allows deduction in respect of health insurance premium paid by the assessee either for himself or his family but the deduction shall be allowed only when payment is made in any mode other than cash. However, the benefit is allowed for preventive health checkups up to Rs.5000 in cash.

6. Donations to Certain Funds (80G): This section allows donations paid to certain religious, sports funds, and charitable trusts as a deduction only if the amount is paid in electronic form except a deduction of Rs.2000 can be paid in cash.

7. Donations made for Scientific Research (80GGA): This section allows donations paid to institutions for conducting scientific and statistical research or for rural development shall be allowed as a deduction provided payment made by any mode other than cash provided Rs. 2000 can be paid in cash.

8. Acceptance of Loan Deposits and specified sum (269SS): A person cannot accept deposits from any person in cash above Rs.20000. The specified sum is about the transfer of property. However in certain cases this section does not apply if deposits are accepted from Government., the banking company, a corporation established by central, state, or provincial Act, or the Government company defined in section 2 (45) of the companies act 2013.  In case of breach of provisions, a penalty @100% of the loan or deposit accepted shall be levied u/s 271D.

9. Repayment of loans and Deposits (269T): Similarly in case of repayment of the above loans and deposit limit of Rs. 20000 shall be applicable. Provided this limit is including interest figures plus the aggregate of loans taken either in individual or joint names. similar exceptions are also provided under this section as section 269SS. similarly, a 100% penalty of repayment of the loan shall be applicable u/s 271E.

10. TDS on Cash Withdrawal (194N): This section enables banking companies, Post offices, or cooperative societies engaged in the business of money lending to deduct TDS @2% on the amount of cash withdrawn by the assessee from the bank on above Rs. 20 lakhs However this limit increased to Rs. 1 crore if last 3 years income tax returns are provided to banks.

11. Tax Audit (44AB): According to this section any person whose turnover exceeds Rs. 1 crore in any previous year shall be liable to get his books of accounts audited by a chartered accountant except that the person has opted for section 44AD Presumptive Taxation scheme.  But the government provided a benefit here that an assessee who is conducting business through online mode and its total cash receipts and payments is not exceeding 5% of total Receipts and payments then the threshold turnover shall be Rs. 10 crore instead of Rs. 1 crore.