Fig leaf of PAN would be inadequate as taxman is watching every high value cash transactions

Section 40A (3) disallows cash expenses in excess of Rs 10,000 in toto while computing a person’s income from business and profession

S Murlidharan December 21, 2018 15:40:54 IST
Fig leaf of PAN would be inadequate as taxman is watching every high value cash transactions

The government has done well to reiterate the five types of cash transactions one must steer clear of in particular. You can afford to ignore them only at your peril.

1. The first in the list is not to accept cash of Rs 2,00,000 or more in aggregate from a single person in a day or for one or more transactions relating to one event or occasion. Lest one is tempted to bypass the rigor of this prohibition by say paying Rs 1.50 lakh today and another Rs 1.50 lakh tomorrow to a property builder, section 269ST of the Income Tax Act 1961 that enshrines this salutary rule goes on to say that if cash payments of Rs 2 lakh or more are spread over several days, they would be hit by this prohibition. Thus if you are buying a flat from a builder, it is not kosher for you to pay Rs 1.50 lakh today, Rs 1.50 tomorrow and Rs 1.50 day after and so forth. All the three of them are parts of the same transaction and hence no subterfuges would work. The builder in this example dare not violate this prohibition because the consequences are grim and enormous----penalty under section 271DA equals to the cash received which in this case is Rs 4.50 lakh.

One wishes that the government had not given any other leeway but sadly it has. Accordingly the builder in this example would be spared of this deterrent penalty if he can show sufficient and good reasons. Pray what could they be? It is this kind of discretionary power that has been the bane of our fiscal laws. Power corrupts and absolute power corrupts absolutely is an old hat. But discretionary power is more dangerous---it encourages hush-hush deals. The government however must be complimented for not indulging the parties further as was the case earlier---furnishing of Permanent Account Number (PAN) was open sesame to cash transactions earlier. But no longer. This is a good augury. It needlessly puts the burden and onus on the income tax department to gun after the one who gets away by furnishing the PAN. Builder was taken in a metaphorical sense. A jeweler’s example could also have been taken.

Fig leaf of PAN would be inadequate as taxman is watching every high value cash transactions

Representational image. Reuters

There is no reason why a person cannot arrange payment through banking channels for high value transactions. Hospitals are often cited as centers where cash payments must be indulged considering the emotional needs of patients and their families. But with the poor brought under the Ayushman Bharat Yojana the bottom for case for indulging high value cash transactions in hospitals has been knocked out.

It is good that penalty is on the receiver and not on the payer because it is a tacit acceptance that the more well-heeled receiver should lead the way by complying with the laws of the country. It is good because it is of a piece with the refrain that the bribe taker is as much guilty as the bribe giver. It is also good because it is of a piece with the progressive schools dictum that a student showing his answer is as much culpable as the one copying. In these senses, the payer ought also to be punished but to start with hefty penalty on the receiver should have a disciplining effect on both.

2. Section 40A (3) disallows cash expenses in excess of Rs 10,000 in toto while computing a person’s income from business and profession. Earlier the limit was Rs 20,000. While the reduction in the leeway for cash is good, it must be made clear that the businessman cannot get round the rigor of this rule by phasing his cash payments over several days with each day’s payment being less than Rs 10,000.

3. The third admonition not to make political donations in excess of Rs 2,000 in cash is bound to invite derision because political parties are adept in the game of splitting huge donations of say crores of rupees into units of Rs 2,000 anonymous donations to get round this rigor. If the government is serious about stamping out the pernicious influence of cash in our elections, it must abolish cash donations lock, stock and barrel

4. The fourth admonition is not to pay health insurance premium in cash as otherwise it would not make the grade for deduction under section 80D. One wishes the onus was also put on health insurance companies by saying that if they accept cash premia, they will be subjected to a hefty penalty equal to such cash receipt.

5. The fifth admonition contained in section 269SS and reiterated now is against taking loans or deposits in excess of Rs 20,000 in cash. There are name lenders to protect the black money owners.  They walk in lock-step.  It is to break this lock step that this salutary prohibition was made.  It is good that no leeway or latitude has been shown---the limit of Rs 20,000 enures for the current loan or deposit as well as the outstanding loan or deposit.  Thus a name lender has been halted in his tracks. He cannot shield a crook for his undisclosed income by vesting it with the character of a loan from him beyond Rs 20,000 including outstanding dues. The penalty on lender is the amount taken as loan or deposit in violation of this limit.  It can be quite hefty.

All these would go a long way in making India a less cash economy that incestuously breeds and nurtures black money.  A spin off by no means a mean one would also be leg up to digital payments.

(The author is a senior columnist and tweets @smurlidharan)

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