Various provisions to be amended to recognize various digital mode as acceptable under the Income Tax Act -1961

There are various provisions in the Act which prohibit cash transactions and allow or encourage payment or receipt only through account payee cheque, account payee draft or electronic clearing system through a bank account.

Instances of such provisions are as under:

1. Section 13A of the Act requires a political party to receive donation exceeding rupees two thousand only through an account payee cheque or an account payee bank draft or using the electronic clearing system through a bank account, for the purpose of exemption of such donation.
2. Section 35AD of the Act provides that the term ‘any expenditure of capital nature’ shall not include any expenditure in respect of which the assessee makes payment (or an aggregate of payments) exceeding rupees ten thousand to a person in a day through any mode other than an account payee cheque or an account payee bank draft or using the electronic clearing system through a bank account.
3. Section 40A of the Act provides for disallowance of any expenditure for which the assessee makes payment (or an aggregate of payments) exceeding rupees ten thousand through any mode other than an account payee cheque or an account payee bank draft or using the electronic clearing system through a bank account.
4. Sub-section (1) to section 43 of the Act provides the definition of the term “actual cost”. The second proviso to the said section specifies that where the assessee incurs any expenditure for the acquisition of an asset or part thereof, and in respect of such acquisition, he makes a payment or aggregate of payments exceeding rupees ten thousand in a day to a person in any mode other than an account payee cheque or an account payee bank draft or using the electronic clearing system through a bank account, then such expenditure shall not be included in the determination of the actual cost.
5. 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 for transfer 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 account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account on or before the date of agreement for transfer of the asset.
6. Similar provision is made in the second proviso to sub-section (1) of section 50C and the second proviso to sub-clause (b) of clause (x) of sub-section (2) of section 56.
7. Section 44AD of the Act relates to presumptive taxation scheme for eligible businesses and provides that in case of an assessee engaged in an eligible business shall be eligible to avail the benefit of the presumptive taxation scheme if the profit from such business is declared at at the rate of eight per cent. or higher of the total turnover or gross receipts in the previous year from such business. The proviso to sub-section (1) of the said section provides that the eligible assessee can opt for the presumptive taxation scheme if he declares profit at the rate of 6% or higher of turnover received through an account payee cheque or an account payee bank draft or the use of electronic clearing system through a bank account.
8. Section 80JJAA of the Act provides for the deduction of an amount equal to at the rate of 30% of additional employee cost incurred by an assessee in the previous year in the course of a business covered under section 44AB, for three years including the year in which such additional employment is provided. Sub-clause (b) of clause (i) of the Explanation to this section specifies that the additional employee cost in case of an existing business shall be nil if the emoluments are paid otherwise than by an account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account.
9. Section 269SS of the Act prohibits a person from taking or accepting from a depositor any loan or deposit or any specified sum equal to rupees twenty thousand or more otherwise than by an account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account.
10. Section 269ST of the Act prohibits a person from receiving an amount of rupees two lakh or more in aggregate from a person in a day or in respect of a single transaction or 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 by use of electronic clearing system through a bank account.
11. Section 269T of the Act prohibits a banking company or a co-operative bank and any other company or co-operative society and any firm or other person from repaying any loan or deposit made with it or any specified advance received by it, in any mode other than by an account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account, if the amount being repaid is rupees twenty thousand or more.

In order to encourage other electronic modes of payment, it is proposed to amend the above sections so as to include such other electronic mode as may be prescribed, in addition to the already existing permissible modes of payment/ receipt in the form

Amendment pertaining to point No. 1 to 8 is proposed from 1^st April, 2020 and will, accordingly apply in relation to assessment year 2020-2021 and subsequent assessment years. Amendment in point No. 9 to 11 is proposed to be effective from 1^st September, 2019.

 Budget – 2019 Special:  CA Naresh Jakhotia

 After cash deposits, now cash withdrawals under scanner

  TDS on cash withdrawal to discourage cash transactions

 In order to further discourage cash transactions and move towards less cash economy, it is proposed to insert a new section 194N in the Act to provide for levy of TDS at the rate of 2% on cash payments in excess of Rs. 1 Crore in aggregate made during the year, by a banking company or cooperative bank or post office, to any person from an account maintained by the recipient.

It is proposed to exempt payment made to certain recipients, such as the  Government, banking company, cooperative society engaged in carrying on the business of banking, post office, banking correspondents and white label ATM operators, who are involved in the handling of substantial amounts of cash as a part of their business operation, from the application of this provision.

It is proposed to empower the Central Government to exempt other recipients, through a notification in the official Gazette in consultation with the Reserve Bank of India. This amendment will take effect from 1st September, 2019.

 Newly proposed section 194N reads as under:

 194N. Every person, being,––

(i) a banking company to which the Banking Regulation Act, 1949 applies (including any bank or banking institution referred to in section 51 of that Act);

(ii) a co-operative society engaged in carrying on the business of banking; or

(iii) a post office, who is responsible for paying any sum, or, as the case may be, aggregate of sums, in cash, in excess of one crore rupees during the previous year, to any person (herein referred to as the recipient) from an account maintained by the recipient with it shall, at the time of payment of such sum, deduct an amount equal to two per cent. of sum exceeding one crore rupees, as income-tax:

Provided that nothing contained in this sub-section shall apply to any payment made to,––

(i) the Government;

(ii) any banking company or co-operative society engaged in carrying on the business of banking or a post office;

(iii) any business correspondent of a banking company or co-operative society engaged in carrying on the business of banking, in accordance with the guidelines issued in this regard by the Reserve Bank of India under the Reserve Bank of India Act, 1934;

 (iv) any white label automated teller machine operator of a banking company or co-operative society engaged in carrying on the business of banking, in accordance with the authorization issued by the Reserve Bank of India under the Payment and Settlement Systems Act, 2007;

(v) such other person or class of persons, which the Central Government may, by notification in the Official Gazette, specify in consultation with the Reserve Bank of India.’.