Over the past few years, the Government has expressed its views on the urge to curb black money. Various steps have been undertaken in this regard. The Income Disclosure Scheme, followed by demonetization of Rs. 500 and Rs. 1,000 notes and the Pradhan Mantri Garib Kalyan Yojana (“PMGKY”) Scheme have made the intentions of the Government of eliminating black money from the economy amply clear.
In the wake of the demonetisation drive, the income tax department has acquired access to details of high value transactions made by taxpayers. With the help of data analytics tools, the income tax department is mining this information to map the same with the department’s database on incomes of taxpayers. In several instances it is seen that either assessees do not file tax returns, have filed a Nil tax return or have offered marginal income to tax. The department is in the process of sending out notices to seek explanations from such assessees. Assessees are required to disclose the source of income in cases whether the income does not match the deposits. This is one more step towards curbing black money.
Amidst this backdrop, Arun Jaitley, the Finance Minister, presented the Union Budget for the year 2017-18 before the Parliament on 1 February 2017. The proposals made in the Union Budget are in sync with the strategy to curb black money by discouraging the use of cash and to digitize the Indian economy.
Various amendments have been proposed in the Finance Bill to disincentivise cash transactions and promote digital economy. Towards the goal of promotion of a digital economy, the Government has proposed schemes to promote usage of the BHIM app for digital payments through mobile phones. Further, Aadhar Pay – a merchant version of Aadhar Enabled Payment system is to be launched to benefit those who do not have debit cards, mobile wallets and mobile phones.
The key tax amendments proposed to promote digital economy are as under: Allowability of depreciation on capital assets where payment is made in cash
With a view to dissuade assessees from cash transactions for purchase of capital assets, it is proposed that depreciation would not be allowed on capital expenditure exceeding Rs. 10,000 in cash. Deduction of 100% on capital expenditure
Presently a deduction of 100% of the capital expenditure is allowed as an incentive to assessees who sets up new business units in certain specified areas/ fields. The deduction would not be permitted if capital expenditure exceeding Rs. 10,000 is made in cash.Donations
As per the extant provisions, deduction for donations made in cash is permitted upto Rs. 10,000. It is now proposed to reduce the permissible limit of cash donations to Rs. 2,000. Reduction in the limit of cash transactions
In order to discourage payment of business expenditure in cash, it is proposed that no deduction should be allowed while computing income from Business and Profession if expenditure exceeding Rs. 10,000 has been made in cash. Earlier, the limit for such disallowance was Rs. 20,000.Receipts by a political party
In order to bring transparency in the source of funding of political parties, it is proposed that in order to avail the benefits provided in the Act, donations in excess of Rs. 2,000 should be received via banking channels or through electoral bonds.Restrictions on receipts
The existing provisions of the Income-tax Act focussed on curbing expenditure in cash. Persons receiving cash were never questioned regarding the genuineness of the receipt. It is now proposed to restrict the recipient of cash from receiving any funds in excess of Rs. 3,00,000 from a person during a day or in respect of a single transaction or in respect of multiple transactions relating to one event. It is noteworthy that multiple payments for high value transactions that are broken up into smaller units is also adequately addressed. Persons receiving cash in excess of Rs. 3,00,000 are subject to a penalty of an equal amount.Incentives for opting for cashless transactions
Presently, an eligible assessee who opts for presumptive taxation is required to pay tax on a deemed income equal to 8% of the gross receipts from the eligible business. In order to encourage small businesses to opt for cashless transactions, it has been proposed that the deemed income will be computed at 6% of the gross receipts or turnover received through banking channels. The existing rate of 8% will continue to apply in respect of gross receipts or turnover in any other mode.
The Finance Minister in his introductory remarks to the Budget Speech mentioned that the agenda was to Transform, Energise and Clean India - Transform the quality of governance and quality of life of the people, Energise various sections of society and to Clean India from evils of corruption, black money and the non-transparent political funding. This agenda is sought to be achieved by a conscious move towards a digital economy and amendments proposed in the Income- tax Act to reduce black money.
As a result of demonetisation, there was a surge in non-cash transactions through digital options such as mobile wallets and debit cards. However, now that the curbs on withdrawal of currency are removed, it is likely that people would move back to carrying out transactions through the cash route. The amendments proposed by the Finance Bill is a means of ensuring that transactions routed through cash is properly regulated and not misused. This would be a sure step in the right direction towards reducing corruption and greater digitisation of the economy.Information for the editor for reference purposes only.
- By Rajiv Bajoria, Partner with Deloitte Haskins & Sells LLP
- By Fiona Rodrigues, Manager with Deloitte Haskins & Sells LLP
- By Pankti Shah, Deputy Manager with Deloitte Haskins & Sells LLP