1. Income tax: As new fiscal starts, here’s what you should be aware of about cash transactions

Income tax: As new fiscal starts, here’s what you should be aware of about cash transactions

Promoting digital economy and demotivating cash transactions was one of the key agendas in the Union Budget 2017.

By: | Published: April 21, 2017 3:19 AM
While moving the Finance Bill for approval in Lok Sabha, finance minister Arun Jaitley introduced a few amendments to the Finance Bill 2017.

Promoting digital economy and demotivating cash transactions was one of the key agendas in the Union Budget 2017. While moving the Finance Bill for approval in Lok Sabha, finance minister Arun Jaitley introduced a few amendments to the Finance Bill 2017. Apart from addressing certain ambiguities arising from the proposals in the original Bill, the amendments also aim to further restrict cash transactions. With the new financial year beginning, 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 the 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 up to Rs 2 crore) opting for presumptive taxation were considering 8% of total turnover or gross receipt as their taxable income. From April 1, 2017, this percentage would reduce to 6% in respect of total turnover or gross receipt received by digital/ non-cash means. Tax deductions under Section 80G will not be available for donations of above Rs 2,000 if it is paid in cash. This limit was Rs 10,000 till March 31, 2017. In case any political party receives donation exceeding Rs 2,000 in any form other than account payee cheque/ draft or ECS or through electoral bond, they would not be eligible for the exemption under income tax law.

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The Finance Bill proposed to prohibit receipt of amount of Rs 3 lakh 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 lakh at the enactment stage.

In view of the above amendment, the requirement of collection of tax at source at 1% on cash sales of any goods or services above Rs 2 lakh has been removed. The Finance Bill, 2017 has received the presidential assent. This means the changes proposed in the Finance Bill 2017 along with amendments have now become law. Hence, the changes mentioned above are effective from 1 April 2017. The writer is tax partner & India Mobility Leader, EY. Inputs from Navneet Golchha, senior tax professional, EY India.

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