1. After the Elections season in our great country the next most anticipated act of the Government was the appointment of the new cabinet of Ministers especially the new Finance Minister and the consequent budget proposal by the new Finance Minister. The new Government has taken certain bold steps in the present budget in order to move towards a more digitized financial economy. Some sections of the public are even hailing the budget as growth and infrastructure focused. One of the most peculiar features of the new budget is the introduction of a slew of amendments for promoting a digital less cash economy. In this section, we will highlight the direct tax proposals made in the new budget in respect of achieving the cherished goal of becoming an economy largely dependent on cashless transactions.

  2. It is a well known fact that over the past few years there have been a number of amendments to the Income Tax Act, 1961 (the Act for short) discouraging cash as a medium of transacting and promoting the use of banking facilities so as to make banking as an indispensable and integral part of business in the country. The said amendments have by and large been successful in deterring the indulgence in cash transactions though, they have their own limitations. The present budget seeks to overcome certain voids and vacuums created by those earlier amendments and thereby paving the way to a largely digitized financial economy.

  3. The most important amendment made in the present budget is by way of introducing amendments in various sections whereby the Central Board of Direct Taxes (CBDT or the Board) has been authorised to prescribe various other electronic modes of payment or receipt which shall be the permissible modes of effecting the transactions so as not to attract the rigours of certain specific anti abuse provisions. These amendments, it appears, are particularly directed at providing a fillip to startups by widening the available platform to various new players in digital payments sector for example various types of mobile wallets, mobile payment systems, unified payment interface (UPI), etc. These amendments apart from increasing the convenience of the assessees would also provide a larger business opportunity to various start- up companies in the digital payments sector said. In fact, the primary amendment to most of the sections which initially provided that only payments through account payee cheque or account payee bank draft or electronic clearing system would only save the assessee from the rigours of those specific anti abuse provisions has now being diluted by permitting receipts and payments through other prescribed electronic modes of payment. To start with clause (d) of the proviso to section 13A which earlier provided that any donation exceeding ₹ 2000/- was to be made only by way of an account pay cheque or an account payee bank draft or use of electronic clearance system or through electoral bond is now amended to include any other prescribed electronic modes of payment of donation to a political party so that a large section of public who have access to digital payments could be included as potential donors to a party fund. Likewise Section 35 AD, 40 A and 43 which initially provided only 3 modes viz. an account payee cheque, an account payee bank draft and use of ECS are now amended to include the other prescribed electronic modes of payment so as to prevent the rigours of disallowances in these sections for making payments in cash exceeding ₹ 10,000/-. Likewise, subsection (4) of section 43CA has also been amended to include receipt of consideration or a part thereof by way of other prescribed electronic modes
    of payment in order to avail benefit of sub-section (3) of section 43CA. Sub section 3 of section 43CA is aimed at toning down the rigours of that section by providing that where the date of agreement for transfer of asset and the date of registration are different then the stamp duty value as on the date of the agreement would be taken for the purpose of computing the full value of consideration as per section 43CA. This sub-section was [by virtue of sub- section (4) to section 43CA] subject to the initial consideration or part thereof being received by an account payee cheque, account payee bank draft or any other electronic clearing system of a bank account. Post amendment, any other prescribed electronic mode of receipt of the consideration has been included so as to enable an assessee to take the benefit os sub-section (3). Likewise, the proviso to section 44AD
    (1) has now been sought to be amended to include any other prescribed electronic modes of receipt which will be taxed at 6% instead of the usual 8% which treatment is similar to that initially given only to turnover or gross receipts received by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account. Likewise even for the purpose of making payment to the employees in claiming accelerated deduction under section 80 JJ AA in respect of payment to new employees, the payment through other prescribed electronic modes has been included as a valid mode of payment of emoluments to new employees.

  4. Similar amendments have been made to sections 269 SS and 269 T whereby the board is empowered to make rules to prescribe any other electronic mode for accepting or repaying certain loans, deposits and any specified sum as per those sections. The amendments are welcome since with the advent of new modes of electronic payments, it was indeed a need of the hour since the said sections were interpreted far too literally by the judiciary, instead of looking at the basic purpose of the introduction of these section. A similar amendment has been made to section 269 ST whereby again the board is empowered to make rules to prescribe any other electronic mode of undertaking transactions. However, it needs specific mention that the expectation of certain sections of the assessees has not been met by this budget by toning down the rigours of this section in certain situations. For example in the case of hospitals the provisions of section 269 ST should have been or could have been completely done away with since many a times it is almost impossible to avoid paying the hospitals in cash and also complying with section 269ST. However, no specific amendment facilitating the above has been made in this budget.

  5. Another interesting amendment proposed in this budget is by way of insertion of a new section 269 SU whereby it has been proposed that every person carrying on business and having total sales, turnover or gross receipts exceeding ₹ 50 crores shall be required to provide a facility for accepting payments through prescribed electronic mode in addition to the facility for other existing electronic modes for accepting payments. A non compliance of this section is sought to be penalized by proposed new section 271 DB whereby failing to provide such a facility may attract a penalty of 5000 rupees for everyday during which such failure continues unless the failure is occasioned because of good and sufficient reasons.

  6. The budget has also proposed insertion of a new section 194N whereby withdrawal of an amount exceeding ₹ 1 Crore during the year from an account maintained with a banking company or a co-operative society or a post office shall attract Tax Deductions at Source (TDS) equal to 2% of the sum exceeding ₹ 1 Crore. The said TDS shall be treated as Income Tax. This proposed amendment is similar to the earlier Banking Cash Transaction Tax (BCTT) introduced in the Finance Act, 2005 with effect from June 1, 2005 which was ultimately withdrawn with effect from April 1, 2009 in the Finance Act, 2008. Though the BCTT was not liked by various sections of the public it appears to have been re-introduced by introduction of section 194N.

  7. This proposed insertion of section 194N appears to be aimed at controlling and reducing the amount of cash circulating in the economy and also keeping a track of very high value cash withdrawal transactions. However, as noble as the object of this provision may seem, it is a shift from the conventional levy of tax under the Income Tax Act on the income earned to taxing of the withdrawal of probably already taxed income. The provision appears to be adversarial in nature since it leads to further collection and recovery of tax in advance of certain incomes which may have already suffered tax. For example incomes credited in bank accounts net off TDS may again be taxed on withdrawal thereof. However, the area that raises greatest concern is once such a section is introduced it could be amended any number of times to a number less than ₹ 1 crore or increasing the rate of TDS thereon which may lead to a big squeeze in cash circulation in the economy. This, in my humble opinion may act as a deterrent to keeping the money in banks especially for the rural sector which largely depends on cash for i ts day to day business activities. Another aspect that needs to be seen is that the amount withdrawn may not necessarily be the income of the person withdrawing the amount but which may still be taxed on account of withdrawal which leaves ambiguity as to the person who could take credit of such TDS. Hence, suitable amendments in section 198, 199 and the Income Tax Rules are also expected in order to streamline the working of the said provision.

  8. The above mentioned measures are introduced to achieve the target of a highly digitized and less cash economy. To conclude the present budget is a mix of the growth and control oriented approach of the Government. While some provisions would really benefit a large section of public as well as start-ups, some failed to address the grievances of certain section of the public and some others may lead to the greater inconvenience to another section of the public.

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