The Finance Act, 2017 has also made
certain more amendments to push India towards “less cash” economy and to reduce
generation and circulation of unaccounted money. Under the Income Tax Act,
there are various provisions which restrict cash transactions by restriction
through disallowance, higher taxation, penalties, reporting by Annual
Information Report (AIR), withdrawal of benefits, providing incentives for
noncash transaction, reporting in ITR forms etc. we discuss in this article,
provisions, related to restriction of cash transactions under Income Tax Act,
1961 along with amendment made by Finance Act, 2017. Provisions may cause
disallowance, penalty, higher taxation or selection of case through Computer
Aided Scrutiny System (CAAS).
“Various legislative steps
have been taken by the Finance Act, 2017 to curb black money by discouraging
cash transaction and by promoting digital economy.”
Measures taken under Income Tax Act, 1961 to
discourage cash transactions:
prominently include placing restriction on cash transaction by introduction of
New Sections 269ST & 271DA to the Income-tax Act. It has been provided that
no person (other than those specified therein) shall receive an amount of two
lakh rupees 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 or use of electronic clearing system through a bank account.
contravention to the said provision shall attract penalty of a sum equal to the
amount of such receipt. However, the said restriction is not applicable to any
receipt by Government, banking company, post office savings bank or
co-operative bank. It has also been decided that the restriction on cash
transaction shall not apply to withdrawal of cash from a bank, co-operative
bank or a post office savings bank. Necessary notification in this regard is
- It has also
been provided that any capital expenditure in cash exceeding rupees ten
thousand shall not be eligible for claiming depreciation allowance or
investment-linked deduction. Similarly, the limit on revenue expenditure in
cash has been reduced from Rs.20,000 to Rs.10,000.
- In order to
promote digital payments in case of small unorganized businesses, the rate of
presumptive taxation has been reduced from 8% to 6% for the amount of turnover
realised through cheque/digital mode.
- Restriction on
receipt of cash donation up to Rs. 2000 has been provided on political parties
for availing exemption from Income-tax. Further, it has also mandated that any
donation in cash exceeding Rs.2000 to a charitable institution shall not be
allowed as a deduction under the Income-tax Act.
In order to achieve the mission
of the Government to move towards a less cash economy and to reduce the
generation and circulation of black money, the Government has taken many
measures by amending the below mentioned provisions of Income Tax Act, 1961
through Finance Act, 2017 effective from 1 April 2017.
It is suggested to incur the
expenditure through digital way to contribute towards fulfillment of the
mission of the Government of a less cash economy. Digital payments help in
proper maintenance of books of accounts and help in timely compliances. If cash
payment is compulsory then above mentioned provisions should be carefully
considered to avoid any tax consequence.
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