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Income Tax India, Indian Economy, Tax

Restrictions on cash transaction -III

We have seen how Demonetization process was initiated, and the supply of cash in the economy was regulated through exercising Disallowance on expenses incurred in cash, or by imposing higher tax rates on several transactions. This part of the article intends to discuss the other restrictions initiated post-demonetisation phase



Section 269 SS

No person can take or accept any loan or deposit or any specified sum of ₹20,000/- or more from any other person otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account.

If the transaction is between both parties having agricultural income, then they are out of the ambit of the section.

For eg: Mr X and Mr Y are Individuals having agricultural income below Taxable threshold limit. Mr X lends ₹25,000/- to Mr Y, and they are out of the ambit of this section

Section 269 ST

Finance Act, 2017 inserted new Section 269ST in the Act to provide that no person shall receive an amount of two lakh rupees or more,

  • in aggregate from a person in a day;
  • 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 account payee bank draft or use of electronic clearing system through a bank

This provisions of 269 SS and 269 ST shall not be applicable to Government, any banking company, post office savings bank or cooperative bank.

Non-Compliance with these sections would attract equal penalty u/s 271D. As per this section, the liability lies with the recipient. If anyone violates these section, he/she is liable to pay a penalty of equal amount unless he proves he had sufficient reasons for it.

You donated ₹15,000 in cash to a registered trust, now you want to claim it as a deduction under Sec. 80G Hence you have violated the provisions of Sec. 80G, Income tax disallows the expense incurred
A sold goods to Mr B vide invoice no 1/2017-18 of ₹10,00,000 dated 01-04-2017. Mr B made the payment as follows:

  • ₹2,00,000 vide RTGS on 03-04-2017
  • ₹1,50,000 cash payment on 05-04-2017
  • ₹1,90,000 vide bearer cheque on 07-04- 2017
  • ₹ 4,60,000 by account payee cheque on 11-04-2017
Mr A has received the payment of ₹3,40,000 (₹1,50,000 [cash]+₹1,90,000[bearer cheque]) otherwise than by account payee cheque/draft/use of electronic clearing system through a bank. It is covered by section 269ST even if cash payment/bearer cheque payment in a single day is less than ₹2,00,000. The AO can impose a 100% penalty on ₹3,40,000 under section 271DA.

Incentives To Transact Through Banking Channels

Apart from these all restrictions, the Income Tax Act provides incentives to small traders who don’t maintain books of accounts. Unlike in the past, traders who go cashless can declare their income at 6% rather than 8% under Section 44AD, if their gross turnover does not exceed Rs 2 crore.

Suppose a trader makes his transaction in cash for turnover of ₹2 crores then under present presumptive income scheme his taxable income under section 44AD will be ₹16 lakhs @8% of the turnover. After availing of ₹1.5 lakh deduction under section 80C, his total tax liability will be ₹2,67,800. However, if he shifts to 100% digital transactions under the new announcement made, his profit will be presumed to be ₹12 lakhs @6% of turnover, after availing deduction of ₹1.5 lakh under section 80C, his tax liability will be only ₹1,44,200/-.  Here, a digital transaction includes payment received by cheque or through any other means. In the following example, the benefit is explained in three different scenarios.

TOTAL TURNOVER 2 crore 2 crore 2 crore
CASH TURNOVER 2 crore 0.80 crore NIL
DIGITAL TURNOVER Nil 1.2 crore 2 crore
PROFIT ON CASH TURNOVER @ 8% 16 lakhs 6.40 lakhs NIL
PROFIT ON DIGITAL TURNOVER @6% NIL 7.20 Lakhs 12 lakhs
TOTAL PROFIT 16 lakhs 13.60 lakhs 12 lakhs
DEDUCTION U/S 80C 1.5 lakhs 1.5 lakhs 1.5 lakhs
TAXABLE INCOME 14.50 lakhs 12.10 lakhs 10.50 lakhs
TAX PAYABLE 2,67,800 1,93,640 1,44,200
TAX SAVING NIL 74,160 1,23,600

Cashless transactions are soon to become the most preferred payment option. India is gradually transitioning from a cash-centric to cashless economy. Digital transactions are traceable, therefore easily taxable, leaving no room for the circulation of black money. The whole country is undergoing the process of modernisation in money transactions, with e-payment services gaining unprecedented momentum. A large number of businesses, even street vendors, are now accepting electronic payments, prompting the people to learn to transact the cashless way at a faster pace than ever before. However, the questionability on the security of digital transactions in India is still surely a great drawback for the growth of India as a cashless economy.

The earlier parts on this thread are listed as under:

Part I:

Part II:

On Key

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