Cash has always been a facilitator of black money since transactions made in cash do not leave any audit trail. It is easy to hide the identity of the payer and receiver of cash making it difficult to trace the transaction and realise tax or other revenue legitimately due to the government. There were many measures taken by the authorities in the past but were very ineffective and failed to arrest the march of black money. The parallel black economy which is stated to be mightier than real economy continued to flourish and grow. The tainted black money continues to flow relentlessly through the dirty hands of the politicians, businessmen, corrupt public officials especially in defence deals. Huge pile of black money has been stashed away and kept in tax havens and Swiss bank etc and partly brought back to India through legitimate channels. The black money generated out of criminal and smuggling activities also contributed significantly.
At this juncture it is apt to take note of the observations made by the Hon High court of Kerala in CIT v A.M. Fazil (2012) 22 taxmann.com 238(Ker) which is as follows :
"unless prohibition is introduced against cash transactions particularly in sale of property, in film industry and the like atleast for payments over a certain limit in cash, black money generation and circulation cannot be controlled because the disincentives on cash dealings contained under the various provisions of the Income-tax Act have failed to achieve the objective. Further, by prohibiting use of cash in major transactions terror and mafia funding and corruption could be arrested to a large extent."
A stage has been reached where it was felt that the government cannot simply tie its hands helplessly and remain as a mere onlooker. A white paper on black economy was prepared in 2012. So many policy decisions were taken and implemented. A slew of measures were taken since then and this article intends to deal with some of the important remedial follow up actions taken especially by way of changes in tax laws. Fortunately the measures consist not only of curbs, disincentives, restrictions or prohibitions but also incentives and promotional measures. Cash- less economy means less-cash economy as no economy can function without use of cash. Let us discuss.
2. CURBS ON PROPERTY DEALINGS ETC
By Finance Act 2015, section 269SS and section 269T of the Income Tax Act 1961 has been amended so as to provide that a person cannot receive or repay advances in excess of Rs.20,000/- related to deals in immovable property. On violation, penalty shall be levied @100% of the amount of such advances u/s 271D/271E. Similarly one cannot accept or repay deposits/loan in excess of Rs.20,000/- in cash and can be done only through crossed cheques/drafts or through RTGS etc.
3. PROHIBITION ON CASH RECEIPTS
By Finance Act 2017, a very important provision restricting receipts by way of cash has been introduced vide section 269ST with effect from 1-04-2017. It provides that a person cannot receive more than Rs 2,00,000 by cash from any other person (Person for this purpose would include not only individuals but companies, firms, societies, etc). Likewise a person cannot receive cash in excess of Rs.2,00,000/- in relation to a particular identifiable transaction. For eg., If a person sells a TV to a customer say for 2.01 lacs he cannot receive payments by cash since the amount involved in the transaction exceeds Rs 2 lakhs and it cannot be split into 2 payments each being below Rs2 lakhs. The above restriction applies to amounts received in connection with an event or occasion also. For eg, cash gifts at the time of marriage or amount received by a caterer on the occasion of marriage or functions etc. The violation of the above provision will attract 100% penalty u/s 271DA.
4. DISINCENTIVE ON CASH EXPENDITURE:
As per section 40A(3) any expenditure incurred by a person and claimed as deduction from profits will have to make payments only by way of crossed cheques/drafts/RTGS etc so as to avail the deduction if the said payment exceeds Rs 20,000/- per day. By Finance Act 2018, with effect from 1-4-18, the said limit was brought down to Rs 10,000/- per day. Likewise, it is also provided that if you incur an expenditure in the current year but its payment in excess of Rs.10,000/- effected in a subsequent year will also attract section 40A(3). For example if you purchase a material say for Rs.15000/-, you cannot pay cash (since it exceeds Rs 10,000/-) but can split the same. Thus, pay Rs 10,000/- in cash now and pay Rs 5000 next day in order to escape the rigours of the law. . Suppose you get credit of 1 month for payment then also the above suggested mode of payment would apply. Of course the law provides for certain exceptions in Rule 6DD of the IT Rules 1962. For eg, If bank is not working on a particular day, you may make cash payments.
Likewise, if you incur cash expenditure towards purchase of a capital asset in excess of Rs.10,000/- payment for which has been made by way of cash then depreciation cannot be claimed in respect of such an asset. Section 43 of the Income Tax Act has been amended to be effective from 1-4-2018.
In addition to the above changes section 35AD has been amended to provide that the capital expenditure incurred in excess of Rs.10,000/- shall not be allowed as deduction if the said expenditure is incurred in cash.
5. CURBS ON CASH DONATIONS
Section 80G deals with provisions relating to deductions from income of certain donations made by persons to certain specified entities, charitable trusts etc. There was no restriction on making cash donations but from 01-04-2018 onwards any cash donation in excess of Rs 2000 shall be allowed as deduction unless it is by way of cheque or draft/RTGS etc. Similarly, as per section 13A, the income of a political party is totally exempt from tax including donations. But, now w.e.f 1-4-18, it is provided that any cash donations in excess of Rs 2,000/- shall be eligible for exemption from tax. Section 80GGA provides that any sum paid by the assessee in the previous year to a research association which has as its object the undertaking of scientific research or to a University, college or other institution to be used for scientific research shall be allowed as a deduction but any donation in excess of Rs.10,000/- shall not be allowed. It may also be noted that u/s 80GGB any contribution or donation in cash by a company and u/s 80GGC by other persons to a political party or electoral trust shall not be allowed as deduction and there is no monetary exemption.
6. INCENTIVES TOWRDS NON-CASH PAYMENTS:
The government also introduced some measures to encourage non-cash transactions. Section 44AD provides that an eligible assessee can estimate his income @ 8% of his/its turnover or gross receipts from business is below Rs 2 crores and there is no need to maintain accounts. To encourage digital/cheque payments section 44AD has been amended to provide that instead of presuming the rate of 8% as profit from eligible business by an eligible assessee, profit equal to 6% shall be taken if the receipts towards its gross turnover or gross receipts etc are received by way of crossed cheques/drafts/RTGS etc.
7. TDS ON CASH WITHDRAWL �SECTION 194N:
A new section ie 194N has been inserted in Income Tax Act to provide for deduction of 2% on cash withdrawals in excess of Rs 1 Crore in a financial year by an account holder from a bank, cooperative society carrying on banking business and a post office. However this provision shall not apply to payments made by others to the above entities. This provision is effective from 01-09-2019. The idea is to discourage cash withdrawals by customers of the above entities.
8. RECEIPT ONLY THROUGH PRESCRIBED ELECTRONIC MODES
In order to reduce the circulation of black money and to encourage digital economy, Section 269SU provides that an entity carrying on business having an annual turnover in excess of Rs 50 Crores in the immediately preceding previous year shall provide facility for accepting payments through prescribed electronic modes in addition to the facility for other electronic modes. Section 271DB has been inserted w.e.f 01-11-2019 to provide that any failure to provide facility shall attract penalty of Rs.5,000/- per day of continuance of the failure.
7. MEASURES UNDER OTHER LAWS:
In addition to the measures taken under tax laws, there are some other steps taken by government by making changes in Companies Act, Payment of Wages Act, Payment and Settlement Scheme Act 2007 and Real Estate Regulation and Development Act 2016, SEBI Regulations etc.
Section 42 of the Companies Act 2013 provides that a company making private placement of shares shall receive payment only from the bank account of the person subscribing to such shares. This shall not apply to issue of shares other than for cash vide Companies (Amendment) Act 2017. Likewise as per section 182(3) no political party can accept donation from companies otherwise than through crossed cheques/draft/RTGS etc.
Section 6 of the Payment of Wages Act 1936 vide Payment of wages (Amendment) Act 2017 provides that all wages paid by notified organisations/entities shall be only through crossed cheques or by crediting the wages to the account of the employee.
A model sale agreement has been prescribed under Real Estate Regulation and Development Act 2016 whereby a builder/developer is compelled to accept entire payment only through crossed cheques/DD/RTGS etc towards sale of flats/plots. The said provision came in to force with effect from May 2016.
Section 10A of the payment settlement Act 2007 provides that no bank or system provider shall impose any charge upon anyone, either directly or indirectly, for using the electronic modes of payment prescribed under section 269SU of the Income-tax Act, 1961.
There have been changes under SEBI Regulations also regarding receipts by brokers from clients. As per Circular No: MRD/SE/CIR-33/2003/27/08, DATED 27-8-2003 SEBI it is provided that all payments shall be received/made by the stock brokers from/to the clients strictly by account payee crossed cheques/demand drafts or by way of direct credit into the bank account through electronic fund transfer, or any other mode permitted by the Reserve Bank of India. The stock brokers shall accept cheques drawn only by the clients and also issue cheques in favour of the clients only, for their transactions. Stock Brokers shall not accept cash from their clients either directly or by way of cash deposit to the bank account of stock broker.
To conclude it can be taken note that the government has taken various steps and measures to arrest the march of black money and other nefarious activities which pose considerable to the proper development of India. The discussion is not exhaustive and only some important provisions of law are discussed. The drive against black money is a continuing one and in the coming days we can expect more drastic measures. Earlier the better.
Tags :Income Tax