CA Vishal Choudhary

CA Vishal Choudhary

08.11.2016 is the most memorable day for Indian economy, because from that day itself the two highest denominated currency notes (Rs. 1000 & Rs. 500) ceases to be a legal tender. After the demonetization government not stopped but continuously makes effort to reduce cash transactions and leads India to a digitalised and transparent economy either by providing subsidy or making laws. On 01.02.2017 Finance Minister presented Budget 2017 which also contains such provision to curb the use of Cash. The following are the basic amendments made by the Finance Bill 2017.

Disallowance of depreciation u/s 32 and Capital Expenditure u/s 35AD on Cash payment:- 

In order to discourage cash payment for capital expenditure, it is proposed to amend the provision of section 43 of income tax act 1961, where an assessee incurs any expenditure for acquisition of any asset in respect of which payment made or aggregate of payment made  to a person in a single day otherwise than by way of an account payee cheque drawn on a bank or account payee bank draft or use of electronic payment system exceeds Rs. 10000/- such expenditure shall be ignored for the purpose of determination of actual cost of such asset. That means assessee will lose depreciation on cash part (Example- If ACB Ltd purchase a machinery for Rs 10 Lakh, payment being made in cash Rs two lakhs and by cheque Rs eight lakhs than the actual cost of   asset shall be considered as Rs 8 lakhs and cash part will be ignored for cost part so there is loss of depreciation on Rs two lakhs).

Further amendment is made in section 35AD if payment is made in cash than no deduction shall be available u/s 35AD of Income tax Act 1961.

However there is some exemption from above rule if rule 6DD of Income Tax rule 1962 applies.

Restriction on Cash donation:- 

The limit of cash donation has been reduced to Rs. 2000/- from Rs. 10000/- i.e. no cash donation in excess of Rs. 2000 shall be allowed for deduction u/s 80G.

Transaction in cash above Rs. 3 Lakhs is strictly prohibited:-

A new section 269ST has been introduced, which proposed to prohibits the receipt of cash in excess of Rs. 3 Lakhs in a single day from a single person in respect of single transaction. However this restriction is not applicable to Government, any banking company including co-operative bank, post office and other notified persons. Simultaneously there is a penalty provision u/s 271DA introduced. The penalty amount shall be equivalent to the amount received.

Restriction on Political parties: –

No registered political shall be allowed to receive cash donation in excess of Rs 2000/-

Amendment in Section 40A (3) of income tax Act 1961:- 

The current threshold limit for making cash payment in a day under section 40A (3) has been reduced to Rs. 10000/- from Rs. 20000/-

Amendment in Presumptive income u/s 44AD of Income Tax Act 1961:

To promote digital transaction for small business entities, it is proposes to amend section 44AD of the Act to reduce the existing rate of deemed total income of 8% to 6% in respect of the amount of such total turnover or gross receipt received by an account payee cheque or account payee bank draft or use of electronic clearing system.

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June 2021