PROVISIONS OF CASH TRANSACTIONS UNDER INCOME TAX ACT, 1961 APPLICABLE FOR FY 2017-18

DISALLOWANCE OF DEPRECIATION UNDER SECTION 32 AND CAPITAL EXPENDITURE UNDER SECTION 35AD ON CASH PAYMENT

(I) SECTION 32
The Finance Bill, 2017 has proposed that where an assessee incurs any expenditure for acquisition of any asset in respect which a payment or aggregate of payments are made to a person in a day, otherwise than by an account-payee cheque drawn on a bank or account-payee bank draft or use of electronic clearing system through a bank account, exceeds ten thousand rupees, such expenditure shall be ignored for the purposes of determination of actual cost of such an asset, meaning thereby that no depreciation is allowable on capital expenditure in cash exceeding Rs. 10,000/-. Amendment would also affect calculation of capital gain.
(II) SECTION 35AD
The Finance Bill, 2017 has proposed to amend section 35AD of the Act to provide that any expenditure in respect of which payment or aggregate of payments are made to a person in a day, otherwise than by an account-payee cheque drawn on a bank or an account-payee bank draft or use of electronic clearing system through a bank account, exceeds ten thousand rupees, no deduction shall be allowed in respect of such an expenditure.
MEASURES TO DISCOURAGE CASH TRANSACTIONS

(III) SECTION 40A(3) & 40A(3A)
No deduction is allowed for cash payments exceeding Rs.20,000/- for an expenditure or an allowance claimed under business head. In case of payment made for plying, hiring or leasing goods carriages, the limit stands enhanced to Rs. 35,000/-. No Disallowance under section 40A(3) and 40A(3A) is made in such cases under such circumstances as prescribed under Rule 6DD of the Income Tax Rules, 1962, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors. The Finance Bill, 2017 has proposed to reduce the limit of cash payment from present of Rs. 20,000/- to Rs. 10,000/-.

(IV) SECTION 80D
No deduction u/s 80D is allowable if paid in cash other than preventive health check-up expenditure.

RESTRICTING CASH DONATIONS

(V) SECTION 80G
Deduction in respect of donation exceeding Rs.10,000/- is allowable where such sum is paid by any mode other than cash. The Finance Bill, 2017 has proposed this limit of allowability from present of Rs. 10,000/- to Rs. 2,000/-
(VI) SECTION 80GGA
Deduction in respect of donation for scientific research or rural development exceeding Rs. 10,000/- is allowable where such sum is paid by any mode other than cash.
(VII) SECTION 80GGB
Deduction in respect of contribution given by companies to political parties is allowable where such sum is paid by any mode other than cash.
(VIII) SECTION 80GGC
Deduction in respect of contribution given by any person to political parties is allowable where such sum is paid by any mode other than cash.
(IX) SECTION 68
Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. Here any sum includes cash also.
Income chargeable under this section would attract higher taxation u/s 115BBE at the rate of 60 per cent along with Surcharge of 25% of Tax. Penalty is also leviable at the rate of 10%.
If assessee himself declares the income in his return u/s 115BBE no penalty is leviable.
(X) SECTION 69
Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year. Here money includes cash also.
Income chargeable under this section would attract higher taxation u/s 115BBE at the rate of 60 per cent along with Surcharge at 25% of Tax. Penalty is also leviable at the rate of 10%.
If assessee himself declares the income in his return u/s 115BBE no penalty is leviable.
(XI) SECTION 115BBC
If an assessee, being a person in receipt of income on behalf of any university or other educational institution referred to in sub-clause (iiiad) or sub-clause (vi) or any hospital or other institution referred to in sub-clause (iiiae) or sub-clause (via) or any fund or institution referred to in sub-clause (iv) or any trust or institution referred to in sub-clause (v) of clause (23C) of section 10 or any trust or institution referred to in section 11, receives any income by way of any anonymous donation then it would be chargeable at the rate of thirty per cent on the aggregate of anonymous donations received in excess of the higher of the following, namely:—
(A) five per cent of the total donations received by the assessee; or
(B) one lakh rupees, and
This section is not applicable to any anonymous donation received by—
          (a)
any trust or institution created or established wholly for religious purposes;
(b)
any trust or institution created or established wholly for religious and charitable purposes other than any anonymous donation made with a specific direction that such donation is for any university or other educational institution or any hospital or other medical institution run by such trust or institution.
Here “anonymous donation” means any voluntary contribution referred to in sub-clause (iia) of clause (24) of section 2, where a person receiving such contribution does not maintain a record of the identity indicating the name and address of the person making such contribution and such other particulars as may be prescribed. This includes cash donation also.
(XII) SECTION 269SS
No person can take or accept any loan or deposit or any specified sum of Rs.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.
This provision is not applicable to any loan or deposit or specified sum taken or accepted from, or any loan or deposit or specified sum taken or accepted by:—
(a)
the Government;
(b)
any banking company, post office savings bank or co-operative bank;
(c)
any corporation established by a Central, State or Provincial Act;
(d)
any Government company as defined in clause (45) of section 2 of the Companies Act, 2013 (18 of 2013);
(e)
such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette:
Further, the provisions of this section shall not apply to any loan or deposit or specified sum, where the person from whom the loan or deposit or specified sum is taken or accepted and the person by whom the loan or deposit or specified sum is taken or accepted, are both having agricultural income and neither of them has any income chargeable to tax under this Act.
Here specified sum” means any sum of money receivable, whether as advance or otherwise, in relation to transfer of an immovable property, whether or not the transfer takes place.
Non-compliance of this provision would attract equal penalty u/s 271D
(XIII) SECTION 269ST
Finance Bill, 2017 has proposed to insert section 269ST in the Act to provide that no person shall receive an amount of three 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. It is further proposed to provide that the said restriction shall not apply to Government, any banking company, post office savings bank or co-operative bank. Further, it is proposed that such other persons or class of persons or receipts may be notified by the Central Government, for reasons to be recorded in writing, on whom the proposed restriction on cash transactions shall not apply.
Non-compliance of this provision would attract equal penalty u/s 271DA
(XIV) SECTION 269T
No branch of a banking company or a co-operative bank and no other company or co-operative society and no firm or other person can repay any loan or deposit made with it or any specified advance received by it for sum of Rs.20,000/- or moreotherwise than by an account payee-cheque or account-payee bank draft drawn in the name of the person who has made the loan or deposit or paid the specified advance, or by use of electronic clearing system through a bank account.
This section is not applicable to repayment of any loan or deposit or specified advance taken or accepted from—
(i)
Government;
(ii)
any banking company, post office savings bank or co-operative bank;
(iii)
any corporation established by a Central, State or Provincial Act;
(iv)
any Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956);
(v)
such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette.
Here “specified advance” means any sum of money in the nature of advance, by whatever name called, in relation to transfer of an immovable property, whether or not the transfer takes place
Non-compliance of this provision would attract equal penalty u/s 271E
(XV) SECTION 206C(1D)
Any person, being a seller, who receives any amount in cash as consideration for sale of bullion, shall, at the time of receipt of such amount in cash, collect from the buyer, a sum equal to one per cent of sale consideration as income-tax, if such consideration for bullion exceeds two hundred thousand rupees. This provision was extended w.e.f. 01/06/2016 to cover any other goods or services exceeding Rs.2 Lakh, if received in cash, except where TDS has been deducted.
(XVI) RULE 114E
This rule has been amended to get information related to financial transactions through cash and by other modes in excess of threshold specified in provisions through AIR covering large number of assessee’s as well as non-assessees.
The statement of financial transaction is required to be furnished under sub-section (1) of section 285BA of the Act in respect of a financial year in Form No. 61A
The statement is required to be furnished by every person mentioned in column (3) of the Table below in respect of all the transactions of the nature and value specified in the corresponding entry in column (2) of the said Table in accordance with the provisions of sub-rule (3)-(Hereunder only transaction related to cash is being given for ready reference) Serial number is being given according to original rule.
Sl. No
Nature and value of transaction:-
Class of persons (reporting person):-
1
(a)
Payment made in cash for purchase of bank drafts or pay orders or banker’s cheque of an amount aggregating to ten lakh rupees or more in a financial year.
(b)
Payments made in cash aggregating to ten lakh rupees or more during the financial year for purchase of pre-paid instruments issued by the Reserve Bank of India under section 18 of the Payment and Settlement Systems Act, 2007 (51 of 2007).
(c)
Cash deposits or cash withdrawals (including through bearer’s cheque) aggregating to fifty lakh rupees or more in a financial year, in or from one or more current accounts of a person.
A banking company or a co-operative bank to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act).
2
Cash deposits aggregating to ten lakh rupees or more in a financial year, in one or more accounts (other than a current account and time deposit) of a person.
(i)
A banking company or a co-operative bank to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act);
(ii)
Post Master General10 as referred to in clause (j) of section 2 of the Indian Post Office Act, 1898 (6 of 1898).
4
Payments made by any person of an amount aggregating to—
one lakh rupees or more in cash against bills raised in respect of one or more credit cards issued to that person, in a financial year.
A banking company or a co-operative bank to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act) or any other company or institution issuing credit card.
11
Receipt of cash payment exceeding two lakh rupees for sale, by any person, of goods or services of any nature (other than those specified at Sl. Nos. 1 to 10 of this rule, if any.)
Any person who is liable for audit under section 44AB of the Act.
12
Cash deposits during the period 09thNovember, 2016 to 30thDecember, 2016 aggregating to—
(i)
twelve lakh fifty thousand rupees or more, in one or more current account of a person; or
(ii)
two lakh fifty thousand rupees or more, in one or more accounts (other than a current account) of a person.
(i)
A banking company or a co-operative bank to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act);
(ii)
Post Master General as referred to in clause (j) of section 2 of the Indian Post Office Act, 1898 (6 of 1898).]
13
Cash deposits during the period 1st of April, 2016 to 9th November, 2016 in respect of accounts that are reportable under Sl.No.12.
(i)
A banking company or a co-operative bank to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act);
(ii)
Post Master General as referred to in clause (j) of section 2 of the Indian Post Office Act, 1898 (6 of 1898).]
The reporting person mentioned in the Table other than the person at Sl. No. 11 is required , while aggregating the amounts for determining the threshold amount for reporting in respect of any person as specified in the Table,—
(a)
take into account all the accounts of the same nature as specified in column (2) of the said Table maintained in respect of that person during the financial year;
(b)
aggregate all the transactions of the same nature as specified in column (2) of the said Table recorded in respect of that person during the financial year;
(c)
attribute the entire value of the transaction or the aggregated value of all the transactions to all the persons, in a case where the account is maintained or transaction is recorded in the name of more than one person;
(d)
apply the threshold limit separately to deposits and withdrawals in respect of transaction specified in item (c) under column (2), against Sl. No. 1 of the said Table

(XVII) RESTRICTION THROUGH WITHDRAWAL OF BENEFITS
In order to discourage the cash transactions and to bring transparency in the source of funding to political parties , Finance Bill,2017 has proposed to amend the provisions of section 13A to provide for additional conditions for availing the benefit that no donations of Rs.2000/- or more is received otherwise than by an account-payee cheque drawn on a bank or an account-payee bank draft or use of electronic clearing system through a bank account or through electoral bonds.
(XVIII) RESTRICTION THROUGH PROVIDING FOR INCENTIVIZING NON-CASH TRANSACTIONS

Finance Bill,2017 has proposed to amend section 44AD of the Act to reduce the existing rate of deemed total income of eight per cent. to six per cent in respect of the amount of such total turnover or gross receipts received by an account-payee cheque or account-payee bank draft or use of electronic clearing system through a bank account during the previous year or before the due date specified in sub-section (1) of section 139 in respect of that previous year. This would be another way to discourage cash transaction through lower rate of net profit on transaction other than cash mode.

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