Promoting digital economy and demotivating cash transactions was one of the key agendas in the Union Budget 2017 presented by the Finance Minister. While moving the Finance Bill for approval by Lok Sabha, he introduced amendments to the Finance Bill 2017. Apart from addressing certain ambiguities arising from the proposals in the original Bill, the amendments also aims to further restrict cash transactions. With the beginning of the new financial year, let us look at the changes in respect of cash transactions that an individual should be aware of:
- Cash payment of expenses or aggregate of payments made to a person in a day is restricted to Rs 10,000 instead of previous limit of Rs 20,000. If cash payment is made in excess of the specified limit, no deduction under the income-tax laws would be allowed for such expenses.
- The eligible taxpayers (having total turnover or gross receipt is up to Rs 2 crores) opting for presumptive taxation were considering 8% of total turnover or gross receipt as their taxable income. From 1 April 2017, this percentage would reduce to 6% in respect of total turnover or gross receipt received by digital/ non-cash means.
- Deductions under section 80G would not be available for eligible donations above Rs 2,000 if it is paid in cash. This limit was Rs 10,000 till 31 March 2017.
- In case any political party receives donation exceeding Rs 2,000 otherwise than account payee cheque/ draft or ECS or through electoral bond, they would not be eligible for the exemption under income tax law.
- The Finance Bill proposed to prohibit
receipt of amount of Rs 3 lakhs or more by cash and proposed a
penalty equal to the amount received in case of default. The limit
applies to: (a) Aggregate receipts from a person in a day; (b)
Single transaction; (c) Transactions relating to one event or
occasion from a person. This limit has been reduced to Rs 2 lakhs
at the enactment stage.
In view of the above amendment, the requirement of collection of tax at source @ 1% on cash sales of any goods or services above Rs 2 lakhs has been removed.
While we may expect further clarity or FAQ on this from the Income-tax department at a later stage, the provision as it was introduced is explained in the below table:
(a) Aggregate receipts from a person in a day If a person receives Rs 2.5 lakhs in cash from a person in a day even for different invoices, the provision is violated Penalty in all such cases would be 100% of the amount of receipt. (b) Single transaction If the aggregate payment received in cash for a single invoice/ transaction is Rs 3.5 lakhs, even if payment is received on different dates and each payment is below Rs 2 lakhs, the provision is violated (c) Transactions relating to one event or occasion from a person If cash received from a person in relation to one event or occasion (for example marriage) is Rs 2.25 lakhs, the provision is violated even if payment is received over a period of time
The Finance Bill, 2017 has received the presidential assent. This means the changes proposed in the Finance Bill 2017 along with amendments has now become law. Hence, the changes mentioned above are effective from 1 April 2017. Considering the wide applicability of these provisions, all individual should be aware of these changes.
(Navneet Golchha, Senior Tax Professional, EY India contributed to the article)
(Views expressed are personal)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.