Restriction on Cash Transaction under Section 269ST of Income Tax Act, 1961

The Central Government is continuously working to curb and stop black money circulations in our country. In order to achieve their motto Central Government has introduced provisions of Section 269ST and 271DA in the Income Tax Act, 1961, with effect from 1st April, 2017. The main features are; 

1. The mode of transactions; Section 269ST: no person shall receive an amount of Rs. 2.00 Lakhs or more otherwise than by an account payee cheque or account payee bank draft or electronic clearing transfer system through bank accounts. These provisions will be applicable, whether the person is seller or service provider or transfer of capital assets. The limit of Rs. 2.00 Lakhs will be calculated as follows;

a) The aggregate amount received (other than by account payee cheque/bank draft/electronic transfer) from the same person in a day should not be more than 2.00 Lakh or more;

b) Amount received received (other than by account payee cheque/bank draft/electronic transfer) in a single transaction should not be more than 2.00 Lakhs or more;

c) Amount received received (other than by account payee cheque/bank draft/electronic transfer) in respect of a transaction relating to one event /occasion from a single person should not be more than 2.00 Lakhs or more;

Note: above restriction is not applicable when recipient is Central Government, Local Authorities, Bank, Financial Institutions, Post Offices, Co-operative banks and other person notified by the Government.

IN THE FOLLOWING CASES PROVISIONS OF SECTION 269ST IS NOT APPLICABLE;

a) Withdrawal from bank, post offices, c-operative banks according to Notification No. SO1057(E), dated 5th April, 2017;

b) CBDT has notified some person, who have exempted from receiving Rs. 2.00 Lakhs from the provisions of Section 269ST of the Income Tax Act, 1961. The CBDT has enlisted following entities;

i) The receipt by a business correspondence on behalf of a banking company or co-operative bank according to the guidelines of RBI;

ii) Receipt by White Label ATM Operator from retail outlet sources of a banking company or co-operative bank, in accordance with the authorisation of RBI;

iii) Receipt by an agent of an issuer of prepaid payment instruments in accordance with the authorisation of RBI;

iv) Receipt by a company or institution issuing credit cards against bills raised in respect of one or more credit cards;

v) Receipt pertaining to any award / reward which is no included in total income under Section 10(17A).

NOTE: CBDT has clarified that in case of repayment of loan from persons to Non-Banking Finance Companies/ Housing Finance Companies all instalments paid in cash shall not be aggregated, only single instalments should be considered. Suppose Mr. A is paying his Rs. 10,00,000/- loan from a Non-Banking Finance Company in cash and he has paid Rs. 25,000/- of instalments each month. Then in a year his payment will be Rs. 3.00 Lakhs and which violates provisions of Section 269ST in the hand of NBFC(s). Now in this case single transaction should not be more than Rs. 2.00 Lakhs and not all instalments in a year should be aggregated. [Circular No. 22/2017 dated 3rd July, 2017]. 

PENALTY [SECTION 271DA]:

Any person who has received any sum in contravention of thee provisions of Section 269ST shall be levied penalty equal to the amount of the sum received, provided that the penalty shall not be levied if he proves that he has not contravened the provisions. The penalty under provisions of Section 269ST shall be levied by the Joint Commissioner of Income Tax. 

Tax Planning- Save tax through your family

Its a fact that Your own parents as well as your own in-laws can become legal tools of tax planning for you and your family. If you want to achieve this dictum then all you are need to do is just to give away a portion of your funds, either as a gift or a loan, to your parents as well as your parents in law so that in years to follow your income tax burden becomes lighter as the income on funds transferred by you to them which would bring in income would be taxed in their hands.

Saving Tax through Family! Surprised! Yes, we can save tax through our family members i.e. Parents, Major Children’s and Wife. To Save Tax through Family members we needs to invest in way that our tax burden shifts to our family members and we can take the benefit of Income Tax Slabs.  Saving tax Through means not only saving in tax but also means Post Tax  higher returns on your Investment.

Here is how we can save tax through our family members.

Save tax through Through Parents:-

You can save tax through our own parents as well as through our Parent in-laws. To achieve this goal you needs to give away a portion of your funds, either as a gift or a loan, to your parents as well as your parents in law so that in years to follow your income tax burden becomes lighter as the income on funds transferred by you to them which would bring in income would be taxed in their hands.

Assuming that both the parents are senior citizens. Here’s how you go about it. Income tax deductions allow senior citizens a tax-free income of Rs 3 lakh. To exhaust this limit, say you gift Rs 28 lakh to each parent in cash. Of this, both can individually put Rs 15 lakh in a senior citizens savings scheme that earns a return of 8.3 per cent and pays interest every quarter. Each will get yearly interest of nearly Rs 1.2 lakh. If they invest the remaining Rs 13 lakh each in the State Bank of India’s (SBI) fixed deposit (FD) of eight-years (at an interest rate of 7.25 per cent) that pays interest each quarter, it will fetch them an income of nearly Rs 0.95 lakhs annually. That means both parents have earned Rs 2.4 lakh from the senior citizen saving scheme and another Rs 1.9 lakh from SBI’s five-year deposits each year. A total Tax savings on Income of Rs 4.3 lakh – the tax-free limit (Rs 3 lakh) that each parent enjoys. So, they don’t even need to file tax returns.

Same planning can be done for parents in laws.

Save tax Through Major Children:-

All your adult children are as solid as a rock to help you save your income tax. After October 1, 1998, the provisions relating to gift-tax have ceased to exist. Now you are free to gift away your money to your children without attracting gift tax. Investment made by Major Children out of the gift received by you will be  taxed in the hands of your children.  If for any reason you are inclined to make gifts to your major children, then you may give interest-free loans to your adult children so as to legally reduce your taxable income.

It is lawful to grant interest-free loans to adult children from your own funds.

Save tax Through Your wife:-

Married taxpayers can make a substantial saving of income tax by setting up two separate independent income tax files, one each for the husband and the wife.  If your wife is already filing Income Tax Return then she may continue filing the return with hew new surname and address or with her old surname and address.

Thus, as a result of marriage one should plan a separate income-tax file of the wife. However, care should be taken to ensure that no direct gift or transfer from husband is made to the wife as clubbing provision may get attracted.

Is the interest earned on NSCs taxed on annual or accrual basis?

The interest from NSC in the final year is not tax deductible as it is not reinvested further.

Query: I have invested in some National Savings Certificates (NSC) that will mature in 2022-23. The entire interest will be paid to me when the NSCs mature. Will I have to pay tax at the time of encashment or annually on accrual basis?

Ans: The interest on NSC is taxable annually on accrual basis. The interest accrued is deemed to be reinvested on behalf of the NSC holder each year and you need to declare this interest income under the head ‘income from other sources’. However, you can claim deduction for this accrued interest under Section 80C of the Income-Tax Act. Please note that the interest from NSC in the final year is not tax deductible as it is not reinvested further.

Query: My wife and I reside in a leased house provided by my employer. Rent to the landlord is paid partially by the employer and partially by me. Can my wife avail of HRA benefits, if she too contributes towards the rent payments?

Ans: Consultancy fee received by you will be taxed under the head ‘income from business and profession’. The income in dollars will have to be converted into rupees at SBI’s dollar buying rate as on 31 March 2018. You can pay tax on presumptive basis under Section 44ADA—50% of total income will be considered taxable. If the foreign company deducts tax before it pays you, you can claim tax credits for the same. You aren’t liable to pay GST as consultancy service to a foreign company is treated as an export, and exports do not come within GST’s purview.

5 smart things to know about tax breaks on education loan

1.To claim deduction, the loan should be taken from a bank or a qualified institution for higher education of self, spouse or children or the student for whom the individual is a legal guardian.

2. Higher education can be in any field after passing the senior secondary examination or its equivalent exam. It includes both the vocational courses and the regular courses. 

3. Only the total interest part of the EMI paid during the financial year is allowed as deduction. No tax benefit is allowed for the principal repayment.

4. There is no limit on the maximum amount that is allowed as deduction.

5. The deduction for the interest on loan starts from the year of repayment and is available only for eight years or until the interest is fully repaid, whichever is earlier.

Reverse Charge u/s 9(4) of CGST act applicability extended !

The awaited applicability of section 9(4) of CGST Act, section 5(4) of IGST Act & Section 7(4) of UTGST Act which was exempted earlier till 30.06.2018 has been now further extended again via  notification  given below till 30.09.2018.

The exemption contained in this notification shall apply to all registered persons till the 30th day of Sept, 2018. Thus via these notification the Government has by exercising the powers as conferred by Sec 11 of CGST Act & Sec 6 of IGST act respectively exempted the intra-state supply of goods or services or both as well as inter-State supply of goods or services or both received by a registered person from any supplier, who is not registered, from the whole of the CGST & IGST leviable thereon under the specified sections respectively.