A) Section 269SS and 269T – Mode of taking or accepting and repayment of certain loans and deposits through banking channels
Section 269SS of the Income–tax Act, 1961 requires that acceptance of any loan or deposit or any specified sum exceeding Rupees twenty thousand may be made only by an account payee cheque or an account payee bank draft or use of electronic clearing system.
Further, Section 269T of the Income–tax Act, 1961 requires that the repayment of any loan or deposit or any specified advance exceeding Rupees twenty thousand may be made only by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account.
The Finance Act (No. 2), 2014 provided to allow the other valid modes like “use of electronic clearing system through a bank account” w.e.f 01.04.2015.
Extending the scope w.e.f Assessment year 2015-16 limits the purpose of the amendment. Several litigations are pending since transactions made through RTGS, NEFT, ECS and EFT was not covered within the scope of section 269SS and 269T.
In order to clarify the intent of the law, it is therefore suggested that the beneficial amendment as made by Finance (No. 2) Act, 2014 extending the scope of payment modes by including electronic fund transfer should be effective for all pending cases instead of AY 2015-16, by inserting an explanation in both section 269SS and section 269T.
B) Section 269ST - Restriction on cash transactions – Certain concerns to be addressed
In order to achieve the mission of the Government to move towards a less cash economy to reduce generation and circulation of black money, the Finance Act 2017 inserted section 269ST in the Act to provide that no person shall receive an amount of two lakh rupees or more,—
- (a) in aggregate from a person in a day; or
- (b) in respect of a single transaction; or
- (c) in respect of transactions relating to one event or occasion from a person, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account.
Further, vide notification no 28/2017, dated 5.4.2017, it has been provided that such restriction on cash receipt shall not apply to receipt of cash by any person from a bank, co-operative bank or a post office savings bank. Thus, cash withdrawals from a bank, co-operative bank or a post office savings bank would not be hit by the provisions of section 269ST.
Subsequently, vide Circular No 22/2017, dated 3.7.2017, it has been clarified that in respect of receipt in the nature of repayment of loan by NBFCs or HFCs, the receipt of one instalment of loan repayment in respect of a loan shall constitute a ‘single transaction’ as specified in clause (b) of section 269ST of the Act and all the instalments paid for a loan shall not be aggregated for the purposes of determining applicability of the provisions section 269ST.
i) Issues “transactions relating to one event or occasion”
(i) The phrase “transactions relating to one event or occasion” is very subjective and prone to multiple interpretations and may result in avoidable litigation.
Receipts exceeding Rs. 2 lakhs in respect of transactions relating to one “event or occasion” from a person is prohibited. Say for example, if salary/ wages is paid in cash to supervisor/ consultant every month such that yearly aggregate exceeds threshold limit of Rs. 3 lakhs, tax authorities may argue that such receipt is covered by section 269ST since payment of salary constitutes one event or occasion even though payments might have been disbursed monthly and raise a demand notice.
Hence, it may be suggested that third limb of “event or occasion” should be explicitly kept out of the scope to avoid any litigation and protect honest taxpayers. Similar controversy may also arise in case of second limb which covers receipt in respect of a “single transaction”.
It is suggested that suitable clarificatory guidelines may be issued to illustrate the intent of the phrase
“transactions relating to one event or occasion from a person”. In the alternative, clause (c) may be removed
ii) Exceptions on the lines of Rule 6DD
Some exceptions on the lines of Rule 6DD need to be provided. Payment of fund amongst relatives, say for household expenses or medical emergencies, is not exempted; settlement of debt by book entry or conversion of loan into equity may also stand covered since it does not strictly fall within the specified modes mentioned above.
It is appreciable that certain exceptions were provided vide Notification No 57/2017 dated 3.7.17. However, there is a still a scope of further additions to such exceptions.
Exceptions on the lines of Rule 6DD may be provided.
iii) Debit card /credit cards etc also should be allowed Modes in all Income Tax section
The Finance Minister, in his budget speech on 1.2.17 has mentioned that promotion of a digital economy is an integral part of Government’s strategy to clean the system and weed out corruption and black money. It has a transformative impact in terms of greater formalisation of the economy and mainstreaming of financial savings into the banking system.
Accordingly, the Finance Act 2017 has, introduced provisions encouraging payment through electronic clearing system like, section 13A, section 35AD, section 40A etc. Further in section 269ST also, receipt in excess of Rs.2 lakh otherwise than by way of account payee cheque or account payee bank draft or use of electronic clearing system (ECS) through a bank account is not permissible and would attract penal provisions.
It is pertinent to note that debit cards, credit cards and e-wallets are being widely used to make payments and these instruments leave an audit trail.
However, technically, they do not fall within the scope of “Electronic Clearing System” as per the meaning of the said term clarified by RBI through its FAQs given at https://www.rbi.org.in/Scripts/FAQView.aspx?Id=55 and reproduced below –
“Electronic Clearing Service (ECS) is an electronic mode of payment / receipt for transactions that are repetitive and periodic in nature. ECS is used by institutions for making bulk payment of amounts towards distribution of dividend, interest, salary, pension, etc., or for bulk collection of amounts towards telephone / electricity / water dues, cess / tax collections, loan instalment repayments, periodic investments in mutual funds, insurance premium etc.
Essentially, ECS facilitates bulk transfer of monies from one bank account to many bank accounts or vice versa. ECS includes transactions processed under National Automated Clearing House (NACH) operated by National Payments Corporation of India (NPCI).”
It is suggested that payment made through banking channels, including debit cards, credit cards and e-wallets, may be permitted under the various provisions of the Income tax Act, 1961.
Alternatively, ECS may be specifically defined in the Income-tax Act, 1961 to include reference to these modes of payment.
iv) Amount and Sum in Section 269ST and 271DA
The expression, ‘amount’ has been used u/s 269ST whereas the expression ‘sum’ has been used u/s 271DA, which may create confusion and result in avoidable litigation.
It is suggested that a uniform expression, ‘amount’ or ‘sum of money’ may be used at both the places i.e. under section 269ST as well as under section 271DA
v) Any receipt from sale of agricultural produce include in exception of 269ST
In Note no. 83 of notes on clauses to the Finance Bill, 2017, the following amounts/ nature of transactions are excluded: -
“Any receipt from sale of agricultural produce by any person being an individual or Hindu Undivided family in whose hands such receipts constitutes agricultural income “
This transaction has been inadvertently omitted from the list of exclusions in section 269ST.
It is suggested that the above highlighted transaction as referred to in notes to clauses be excluded from the operation of section 269ST by suitably amending the proviso to section 269ST.
It is also suggested that the benefit of the above exclusion be not restricted only to individual and HUF but also to other assessee’s also who are deriving agricultural income only.