Promoting Digital Economy vide changes made by Finance Act 2017 to the Income Tax Act

Some of the major changes made in the Income Tax Act vide Finance Act, 2017 were towards promoting digital economy, providing a cash less economy, promoting transparency and making a contribution towards fulfilling the dream of our Honorable Prime Minister and of India as a whole.
The following changes were make in the purview of the same-

1)Restricting cash donations (Amendment to apply from A.Y. 2018-19 on wards)

Under the existing provisions of section 80G, deduction is not allow in respect of donation make of any sum exceeding Rs. 10,000/-, if the same is not paid by any mode of other than cash.
Now the limit of Rs. 10,000/- has been revise and reduce to Rs. 2,000/- only.
Thus, any donation make in excess of Rs. 2,000/- by way of cash shall not be allow as deduction to the donor.

2)Dis allowance of depreciation under section 32 and capital expenditure under section 35AD on cash payment

Under the existing provisions of the Act, there is disallowance of only revenue expenditure, if the same is incurred in cash beyond a certain threshold limit but no provisions for dis allowance of the capital expenditure. In order to discourage cash transactions even for capital expenditure, provisions of section 43 of the Act have been amend to provide that-
If an assessee incurs any expenditure for acquisition of any asset, then any payment, for the same, made in excess of Rs. 10,000/- otherwise than by an account payee cheque draw on a bank or account payee bank draft or use of electronic clearing system through a bank account, shall not be add to the actual cost of the asset and shall be ignored.

Further, any expenditure in respect of which payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque draw on a bank or an account payee bank draft or use of electronic clearing system through a bank account, exceeds Rs. 10,000/-, shall not be eligible for deduction under Section 35AD of the Act.

3) Discouraging cash transactions

In order to disincentive cash transactions, provisions of section 40A have been amend to provide the following:
i) Reduction of existing threshold of cash payment to a person from 20,000 Rs to 10,000 Rs in a single day; i.e.
Any payment in cash above Rs. 10,000/- to a person in a day, shall not be allow as deduction in computation of Income from “Profits and gains of business or profession“;
ii) Deeming a payment as profits and gains of business of profession if the expenditure is incur in a particular year but the cash payment is make in any subsequent year of a sum exceeding Rs. 10,000/- to a person in a single day; and
iii) Further expanding the specified mode of payment to include payments by use of electronic clearing system through a bank account in addition to account payee cheque and account payee bank draft.

4) Promoting digital payments in case of small unorganized businesses

In order to promote digital transactions and to encourage small unorganized business to accept digital payments, section 44AD of the Act has been amended to reduce the existing rate of deemed total income of 8% to 6% in respect of the amount of such total turnover or gross receipts received by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account during the previous year or before the due date specified for filing of return of income in respect of that previous year.
However, the existing rate of deemed profit of 8% referred to in section 44AD of the Act, shall continue to apply in respect of total turnover or gross receipts received in any other mode.

5) Restriction on cash transactions

In order to reduce generation and circulation of black money. Section 269ST has been insert in the Act to provide that no person shall receive an amount of Rs. 2,00,000/- or more,-
(a) in aggregate from a person in a day;
(b) in respect of a single transaction; or
(c) in respect of transactions relating to one event or occasion from a person. Otherwise than by an account payee cheque or account payee bank draft. Use of electronic clearing system through a bank account.

Further such restriction shall not apply to Government, any banking company, post office savings bank or co-operative bank.
In order to penalize the violators of the section, a penalty equivalent to amount of such receipt. Shall be impose on the person who receives a sum in contravention of the provisions section 269ST.

Many steps have been take by the government to reduce the cash transactions and promote digitization in the Indian economy. The same will probably take a long time to be fully successful but some small steps can only contribute to huge success in the future.

Article by-Vibhu Gambhir.