The demonetisation knock: Taxing time for taxpayers

The note ban has changed life for taxpayers in several ways. In December 2016, taxation laws were amended to heighten the disincentives when undisclosed income is brought to book.

Towards discouraging high-value cash transactions in future, Budget 2017 went for a carrot-and-stick approach. The tax department also kept assessees on tenterhooks by asking for additional disclosures from time to time.

From April 1, 2017, onwards, the tax rate under Section 115BBE (dealing with taxation of unexplained cash and other assets) was increased to 60 per cent from the earlier maximum marginal rate (30 per cent).

Besides, the taxman may also levy penalty on this under a new Section 271AAC at 10 per cent on the tax in some cases. And if the taxman brings out this concealed income in the course of a search, the penalty has been raised to 30-60 per cent of the tax from lower levels earlier

A new section 269ST was inserted in the Income Tax Act to discourage cash transactions above ₹2 lakh. From April 1, 2017, onwards, no person can receive an amount of ₹2 lakh or more in aggregate from a person on a single day in respect of a single transaction (or transactions related to one event or occasion) otherwise than by an account payee cheque or account payee bank draft or through electronic payment modes.

For contravention of this provision, section 271 DA provides for a penalty equal to the sum received in contravention. The government, banks, post office and other notified institutions are the only exceptions to this rule.

To further keep tabs on high-value transactions, the mechanism of quoting PAN was extended to cover TCS (tax collection at source) transactions from April 1, 2017.

For instance, payment of amount exceeding ₹10 lakh for buying a motor vehicle attracts 1 per cent of the sale consideration as income-tax from the buyer. If the buyer fails to quote his PAN in such cases, tax would be collected at twice the specified rate or the rate of 5 per cent, whichever is higher.

Tax incentives were doled out for businesses, to encourage cheque or electronic payment modes. From assessment year 2017-18 onwards, presumptive income for small businesses filing returns under Sec 44AD will be deemed at 6 per cent of the total turnover or gross receipts received by an account payee cheque or account payee bank draft or use of electronic clearing system.

But the existing higher rate of 8 per cent will continue for turnover or receipts received in any other mode. For those having income under the head ‘profits and gains from business and profession’, any payment in cash above ₹10,000 to a person in a day will not be allowed as deduction in computation of income from the assessment year 2018-19 onwards. The earlier limit was ₹20,000.

Besides, cash spends exceeding ₹10,000 were discouraged for capital expenditure as well.

Finally, for donations made from this year onwards (assessment year 2018-19), deduction under Sec 80G will be available for any sum exceeding ₹2,000 only if the mode of payment is not in cash. Earlier, the limit was at a much higher ₹10,000.

Taxpayers also had to contend with new disclosure requirements in various forums in the last one year. First, under ‘Operation Clean Money’, the tax department reached out to about 18 lakh persons whose cash deposited during November 9-December 30, 2016 was, according to them, not in line with the taxpayer’s profile.

These assessees were then to do an ‘online verification’ of these cash deposits in the e-filing portal - www.incometaxindiaefiling.gov.in . Details of the source of this deposit had to be disclosed here.

‘Operation Clean Money II’ was also launched to take this further. Irrespective of whether you were questioned during ‘Operation Clean Money’, details (IFSC Code, name of bank, account number) of cash deposited in the bank during the demonetisation period (9.11.2016– 30.12.2016 ) if it aggregated to above ₹2 lakh, were also asked for in the IT returns for assessment year 2017-18. This included not only deposits into current/savings account but also repayment of loans.

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