Over the last few years, with a view to create economic inclusiveness and transparency, the government of India initiated various revolutionary steps like digitization, demonetization, and GST along with a push towards a less-cash economy in order to digitize transactions. This was done primarily to bring corruption under control, automate certain key economic sectors, curb black money, and digitally empower the citizens of the country.
Adding to the series of revolutionary steps, the IT department has limited the number and amount of cash transactions and prohibited a few types of cash payments. These restrictions are intended to move India towards a formalized and less-cash economy completely free of black money.
This piece goes into the top five transactions that the Income Tax Department has said a strict “no” to.
#1 – Say NO to Paying More than Rs 10,000 in Cash for Any Business/Professional Expenditure
No tax deduction will be allowed if any business or professional expenditure exceeding Rs 10,000 is made in cash or in mode(s) other than cheque, demand draft, or ECS.
#2 – Say NO to Donating More than Rs 2,000 in Cash
If you donate more than Rs 2,000 in cash to any trust, NGO, or political organization, you will not be able to claim deductions under Section 80(G) of the Income Tax Act. Also, the IT department shall initiate necessary action(s) against the trust or political party for encouraging money laundering.
#3 – Say NO to Accepting Cash of Rs 2,00,000 or More
Never accept cash of Rs 2,00,000 or more in a lump sum from a single person in a day. Section 271(D)(A) of the Income Tax Act charges a penalty on a person who receives a sum in disagreement with the provisions of Section 269(S)(T). The penalty shall be equal to the amount of such receipt. However, the penalty may not be charged if the person proves with apt and enough reasons for such contravention. To avoid such situations, modes like cheque, demand draft, or ECS can be used for such transactions.
Needless to mention, just as you say NO to accepting such large sums, you need to say NO to giving anybody such large sums too.
#4 – Say NO to Receiving or Repaying Specified Sums Exceeding Rs 20,000 in Cash for Transfer of Immovable Property
Any amount of money received, in advance or otherwise, in relation to the transfer of an immovable property (whether the transfer takes place or not) is called the specified sum. Opposition to the provisions of Section 269(S)(S) will attract penalty under Section 271(D). The penalty charged under Section 271(D) will be equal to the amount accepted or received.
#5 – Say NO to Paying Health Insurance Premiums in Cash
No tax deduction will be allowed under Section 80(D) of the Income Tax Act if health insurance premiums are paid in cash. However, cash payment for preventive health check-up is eligible for tax benefits under Section 80(D).
Undoubtedly, a taxpayer has to adhere to all the provisions charted by the IT department to avail tax benefits. However, at the same time, one needs to understand that if such transactions go through banking channels, reporting of income and tax compliance will improve, leading to higher tax revenues. Higher tax revenues would, ideally, lead to lower tax rates, which will benefit all taxpayers in the long run.
(Source and Credits: IOSR Journal, ICMAI, INformal Newz)