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Latest Income Tax Rules

The Central Board of Direct Taxes (CBDT) has provided some restrictions in the Income Tax Act that took effect from 1 April 2017 (financial year 2017-18 and assessment year 2018-19), in respect of expenditure by way of cash, lending by way of cash, and investment by way of cash. These are applicable under various sections of the Income Tax Act to curb circulation of black money and to help build a robust economy.

Section 40A (3) of Income Tax Act

Any payment in aggregate to the same person during a day should not exceed Rs 10,000 (till last year it was Rs 20,000) in cash or a bearer cheque. This restriction does not apply where the expenditure is for personal purposes - that is, the person is not claiming this as his/her business or professional expenditure. (Suppose a person gets his house whitewashed. He may have to pay the painter in cash. Since whitewashing the house is personal expenditure, there is no problem. But if such expenditure is incurred in cash for office whitewashing, then
he cannot claim such expenditure. This restriction does not apply to purchases in cash).

Section 80C

This section allows deduction of life insurance premium (LIP), public provident fund (PPF), provident fund (PF), national savings certificate (NSC), etc., up to a limit of Rs 150,000 paid out of the assessee's income. If an assessee borrows money and makes savings out of such borrowal, the deduction is not available. As a result of restrictions on cash payment U/S 269ST and 269SS, LIP paid in cash will not be allowed as a deduction since LIC or other insurance agencies are not in the exempted list provided in the Section. However, banks and post offices are covered and hence deposit in cash in a bank or deposit in a post office, NSC, PPF, etc., can be done in cash. Care should be taken that the same is made out of tax-paid income of the assessee.

Section 80D

Any medi-claim effected on the life of self, children and parents will be available as deduction subject to the prescribed limits, but the premium should not be paid in cash or by bearer cheque.

Section 80G

This provides for deduction of 50 per cent of the donations paid to charitable institutions that are recognised by the Income Tax Department in this context. Here cash donations of more than Rs 2,000 are not eligible for deduction (till last year this limit was Rs 10,000).

Chapter XX-B

This governs the provisions regarding the requirement as to the mode of acceptance or payment or repayment of certain monies to counteract evasion of tax.

Section 269SS

No person (person includes individual, firm, association of persons [AoP], body of individuals [BoI], company, society, trust, etc.) can take or accept any deposit or loan or any specified sum of whatever nature, otherwise than by account- payee cheque or through any other banking system, any sum exceeding Rs 20,000.

Exclusions

  • Government
  • Banking company, post-office savings bank, cooperative bank
  • Any corporation established by central, state or provincial act
  • Any government company
  • Any other body or class of body as notified by the government in this regard

The restrictions also do not apply to cases where the lender as well as the recipient have agricultural
income.

Section 269T of the Income Tax Act

No branch of a banking company or a cooperative bank, no other company or cooperative society, and no other person shall repay any loan or deposit received otherwise than by account-payee cheque, if in excess of Rs 20,000. The same exceptions as for Section 269SS apply here as well.

Section 269ST

No person shall receive an amount of Rs 200,000 or more in cash from one person in a day or in respect of a single transaction or in respect of transaction relating to one event or occasion. This section exempts any receipt by government, banking company, post-office savings bank account and cooperative bank, among others. (This is to curb purchase of gold, heavy cash expenditure on functions, etc. This does not apply to withdrawal or deposit of
cash in bank account or post-office account.)

Credit-Card Payments

It may be noted that if a person spends through credit card, he has to pay the credit card bill in account- payee cheque only if the amount of payment exceeds Rs 200,000. There is no limit of spending through credit card (the repayment to the credit card probably comes under the purview of Section 269ST).

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Divya Patwal

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1 Comment

  1. M Ravindar
    July 22, 2018
    Reply

    Good information. It helps to all the tax payers

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