Regulating cash transactions through Income Tax Act – 1961
Year after year, new provisions are introduced in the Income Tax Act- 1961 to regulate the flow of cash in the economy. Recent Union Budget -2019 (Part-II) is no more an exception. In order to further discourage cash transactions and move towards less-cash economy, Finance Bill – 2019 have proposed to insert a new section 194N to provide for Tax Deduction at Source (TDS) @ 2% on cash withdrawals from bank or post office in excess of Rs. 1 Crore in aggregate in a year. Further, another landmark change is proposed by introducing new section 269SU in the Income Tax Act – 1961 whereby it will be mandatory for the person with turnover exceeding Rs. 50 Crore to facilitate the payment by customer through electronic mode also. The threshold limit referred to in section 194N as well as u/s 269SU will witness drastic reduction in years to come and will be another game changer provisions to control the parallel economy.
Let us have a look at the other existing provisions which prohibit cash transactions and encourage payment or receipt only through banking channel, as under:
- Section 40A (3) of the Act provides for disallowance of any business expenditure for which the payment (or an aggregate of payments) exceeding Rs. 10,000/- is done in cash.
- Section 43(1) of the Act provides the definition of the term “actual cost” for the purpose of claiming depreciation on it. The 2nd proviso to the said section specifies that if any expenditure for the acquisition of an asset is done in cash exceeding Rs. 10,000/- in a day then such expenditure shall not be considered as part of the actual cost. It means that the amount paid in cash will neither form the part of the cost of the assets nor will be eligible for depreciation.
- Section 44AD of the Act provides for taxation of eligible business on presumptive basis if the profit from such business is declared @ 8% or higher of the total turnover or gross receipts from such business. The proviso to sub-section (1) of the said section provides for special & concessional rate of taxation @ 6% (as against 8% for cash sale/receipt) if the amount is received by an A/c payee cheque, draft or ECS through bank.
- Section 269SS of the Act prohibits a person from taking or accepting from any person any loan, deposit or any specified sum equal to Rs. 20,000/- or more otherwise than by an A/c payee cheque, draft or ECS through a bank. Even acceptance of advance against sale of the property of Rs. 20,000/- or more in cash is prohibited.
- Section 269T of the Act prohibits any person from repaying any loan, deposit or any specified advance referred above, in any mode other than by an A/c payee cheque, draft or ECS if the amount being repaid is Rs. 20,000/- or more.
- Deduction u/s Section 80G towards donation is not available if the payment exceeding Rs. 2,000/- is done in cash. Further, section 13A of the Act requires all political parties to receive donation exceeding Rs. 2,000/- through A/c payee cheque, draft or ECS only so as to be able to claim exemption for such donation.
- Section 35AD of the Act provides that the term ‘any expenditure of capital nature’ shall not include any expenditure in respect of which the taxpayers makes payment (or an aggregate of payments) exceeding Rs. 10,000/- is done in cash.
- Section 269ST prohibits acceptance of Cash exceeding Rs. 2,00,000/- (a) in aggregate from a person in a day; or (b) in respect of a single transaction; or (c) in respect of transactions relating to one event or occasion from a person.
- Section 43CA of the Act provides that where the date of agreement fixing the value of consideration for the transfer of the asset and the date of registration of such transfer of asset are different, then the full value of consideration of such asset shall be the stamp duty value on the date of the agreement provided the amount of consideration or a part thereof has been received by way of an A/c payee cheque, draft or ECS on or before the date of agreement. Similar provision is there in section 50C which provides for capital gain taxation on sale of capital assets and section 56 which provides for taxation of the amount if the property purchased is below the fair market value/stamp duty value.