Closing its grip on black money, we saw a battery of steps taken by government hitting the hoarders from all the directions. Starting by passing the Black Money Act, then offering income declaration schemes, followed by the recent surprise attack of demonetisation, each move of the government is aimed at tightening its hold on the tax evaders and cleaning Indian economy of this menace. In order to address the root cause i.e. generation of domestic black money, government accepted SIT’s recommendation by banning cash transactions of Rs. 2 Lakh or more starting April 1, 2017.
The black money hoarders will have no place to spend their cash piles, since the receiver would have to cough up an equal amount as penalty under the new provisions of penalty. In order to ensure that you don’t fall in taxman’s net, better understand the implication of cash dealings, lest you may unintentionally support the black money hoarders and end up shelling the same amount as penalty.
Under the revised law, effective start of this financial year i.e. April 1, 2017, there is a prohibition on receipt of any amount exceeding Rs 2 lakh, other than by account payee cheque, bank draft or electronic bank transfer, hence even receipt of Rs 2 Lakh or more by a bearer cheque would be a violation of the provision, leading to a penalty of the same amount. Though the tax officer may abstain from levying the penalty, in genuine cases, but the penalty if levied shall be 100%, no less no more.
Many questions arise in the minds of a common man as to how to compute this limit of Rs. 2 Lakh on cash dealing. Is it a daily limit or monthly limit or annual limit? Is it person specific or transaction specific or event/occasion specific?
Let’s try and find answers to some of these questions:
Case 1 – Receiving money from one person in a day against various bills of goods or services
Even if you are receiving money in respect of various bills from same person, you would fall in the net. Hence those planning to break the amount receivable from single person into various bills ensuring that each bill is for less than Rs. 2 Lakh, in order to avoid the penal implication would fail. Bill-splitting is not a loophole that you can use here.
Case 2 – Receipt of cash in respect of a single transaction on different dates
Sale of good or service or asset entailing receipt of cash on various dates shall be clubbed to check the limit of Rs. 2 Lakh. Hence those selling a property/good/service for cash, receiving cash in instalments of less than Rs. 2 Lakh a day, would not go scot free and would be liable to penal implications.
Case 3 – The limit of Rs. 2 Lakh on cash transaction is not restricted to income
Importantly, one must keep in mind that this limit on cash receipt is not restricted the receipts of income. Hence even an amount of loan repayment, reimbursement, gift from a relative, receipt of agricultural income or other tax exempt receipts are within the purview of this provision. Those receiving cash beyond the prescribed limit in respect of any transaction, would be liable to penal actions by the taxman.
Keeping in mind the genuine cases, the government has provided for certain exception
Case 1- Relief for those receiving cash in respect of one event or occasion from various persons, since the limit of cash is in respect of one occasion / event from one person. Hence, receiving cash from various relatives on the occasion of marriage would remain out of the purview of these penal provisions. Even an event organizer receiving the money in cash from various persons for one event, would not be liable to shell out the penalty.
Case 2 – Cash deposits and withdrawals from one’s own bank remain out of the purview of these penal provisions. Hence some respite for the traders dealing in cash owing the structure of Indian economy.
Case 3 – The restriction is not applicable to any receipt by government, banking company, post office savings bank or co-operative bank
Some subjectivity still stays
One question that still remains unanswered is whether a transaction of rendering services at various instances to the same person be considered as a single transaction. Such questions would stand answered only on consideration of facts and circumstances of each case, and we hope that this doesn’t mean harassment to genuine taxpayers.
Those creating hue and cry that India is a cash economy and this move shall dampen the growth of the economy are failing to understand that this step has been taken to contain only the tax evaded flow of money by restricting its use and not the genuine businessmen. Instead of cribbing about the change the wise would realize that gone are the days of black money, India is becoming a cashless economy and its high time business is done the legitimate way. With clean money in the blood flow of the economy, the common-man shall stand benefitted with the rise in growth rate and fall in inflation.