Income Tax Provisions for Cash Transactions in Condensed Form

Income Tax Provisions for Cash Transactions in Condensed Form

Following the demonetization of currency, the government sought to regulate cash transactions, and as a result, numerous measures were enacted to discourage such transactions. In plain words, the following are several provisions added to the Income Tax Act of 1961 and other laws:

1. SECTION 40A(3) 

A payment or series of payments in cash in excess of Rs 10,000 is made to a person in a single day, other than via account payee cheque, account payee demand draft, or electronic system. The law establishes a higher threshold of Rs. 35,000/- for payments made to a carrier. If the amount exceeds Rs 10,000 or 35,000, as the case may be, such expenses are completely forbidden.

2. SECTION 40A(2)

If a payment is made to a Specified person (for example, a relative of an individual, a director of a corporation), the AO will disallow that portion of the expenditure that is deemed excessive and disproportionate.

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3. SECTION 269ST

A person cannot receive an amount of Rs 2,00,000 or more in a single transaction from a person (excluding the government or a bank) in a day, unless by an account Payee check, account Payee DD, or electronic system. The amount of the penalty for non-compliance is equal to the amount of the receipt.

4. SECTION 43(1) 

Depreciation Disallowance – Expenditure for the acquisition of any asset for which a single day’s cash payment to a person exceeds Rs 10,000. Depreciation is not allowed if the value exceeds Rs 10,000.
5. SECTION 80D(2B) If you pay your health insurance premium in cash, you cannot deduct that amount.

6. SECTION 80G(5D)

Any cash contribution for a charitable donation in excess of Rs 2,000 is not deductible from gross total income.

7. SECTION 80GGA(2A)

Any contribution in excess of Rs 10,000 for scientific research or rural development (section 80GGA) is not permitted.

8. SECTION (80GGB & 80GGC)

There is no deduction for cash payments to political parties.

income tax

9.SECTION 194N

TDS @2% on cash withdrawals over 1 crore from a bank, co-operative bank, or post office under Section 194N. Each bank’s limit must be examined separately. If the person has not filed his or her last three years’ income tax return, the maximum would be Rs 20 lac. In the case of non-filler, the TDS rate will be 2% from Rs 20 lac to Rs 1 crore, and 5% over Rs 1 crore.

10.SECTION 44AB

Increase the tax audit ceiling from $5 million to $10 million if-

(a) Cash receipts must not exceed 5% of total receipts.

(b) The total amount paid in cash does not exceed 5% of the total amount due.

11.SECTION 269SS 

No one can receive a loan or deposit of Rs 20,000 or more unless it is in the form of an account payee cheque, account payee draught, or electronic clearing system through a bank account. In the event of a breach, a penalty under section 271D of the Income Tax Act 1961 will be imposed in an amount equal to the amount of the loan, deposit, or specified sum taken or accepted.

income tax

12. SECTION 269T

It makes it illegal for anyone to repay a loan, deposit, or defined sum by any means other than an account payee cheque, account payee bank draught, or electronic clearing system through a bank account if:

  • The loan or deposit amount, including interest, is Rs. 20,000 or more.
  • The total amount of loans or deposits, including the amount of interest,

Rs. 20,000 or more is held by such a person in his own name or jointly with any other person. In the event of a violation, a penalty under section 271E of the Income Tax Act 1961 will be imposed equal to the amount of the loan or deposit repaid.

13.Saving account & Current account

What is the difference between a savings account and a current account? Conserving A/C

The CBDT has made it necessary for a bank or cooperative bank to record cash deposits of Rs 10 lakh or more in one or more accounts (other than a current account and time deposit) of a person during a financial year.

Tax deductions & exemptions are no longer available under the new tax regime.

  • The Central Board of Direct Taxes (CBDT) has stated that banks must disclose if a person deposits an amount of Rs 10 lakh or more in one or more time deposits (other than a time deposit made through renewal of another time deposit) in a financial year.
  • Current account customers have a cash deposit limit of 50,000 rupees. If you exceed this limit, the IT Department will be notified, and you will be given a warning.

14. Cash withdrawal limit from bank and post office

The Post Office has a 20,000 withdrawal limit per customer. No branch postmaster (BPM) may accept a cash deposit transaction in an account totaling more than $50,000 in a single day. In a single day, no cash transactions totaling more than $50,000 are permitted at other SOLs in the account. The minimum required amount to keep a savings account at a post office is $500, and if the minimum conditions are not reached, an account maintenance fee of $100 will be deducted.

15. Credit card bill payments

According to the CBDT, payments made in cash for credit card debts totaling Rs 1 lakh or more must be declared. Furthermore, any payment of Rs 10 lakh or more to settle credit card debts in a financial year (by whatever channel) must be recorded to the tax authorities.

Tax deductions & exemptions are no longer available under the new tax regime.

Tax deductions & exemptions are no longer available under the new tax regime.

Individuals who choose to pay tax under the new lower personal income tax scheme will lose practically all of the tax benefits they were entitled to under the previous system. Section 80C (investments in PF, NPS, life insurance premiums, house loan principal repayment, etc. ), Section 80D (medical insurance premiums), tax discounts on HRA (House Rent Allowance), and interest paid on housing loan will all be unavailable under the new tax regime. Under the new tax structure, there will be no tax benefits for the disabled or charity donations.

“Under the new tax framework, individuals can choose to pay lower rates of tax without taking use of numerous tax exemptions and deductions. Individuals must calculate their tax liability under both the old and new tax regimes before deciding which is most advantageous. While the new system appears to be straightforward due to the lack of exemptions, persons who have already committed to recurring tax savings instruments may still wish to take advantage of exemptions and be taxed under the old regime.

Here’s a rundown of the major exemptions and deductions that taxpayers will lose if they opt for the new system.

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  • Exemption from the leave travel allowance (LTA), which is now given to salaried employees twice in a four-year period.
  • House rent allowance (HRA), which is generally granted as part of a salary to salaried workers. If the individual was staying in rental housing, this might be claimed as tax-free up to specific restrictions.
  • For salaried taxpayers and retirees, a standard deduction of Rs 50,000 is now provided.
  • Taxpayers will not be able to take advantage of the deductions allowed under sections 80TTA/80TTB. According to Abhishek Soni, CEO and creator of Tax2win.in, “Because Sections 80TTA and 80TTB are covered by Chapter VIA, the new tax regime bans deductions under Chapter VIA, with a few exceptions. As a result, a person who chooses the new tax system will be ineligible to claim deductions under sections 80TTA (Interest on Savings Account Deposits) and 80TTB (Interest on Senior Citizens Deposits).”
  • Section 16 provides for a deduction for entertainment allowance (for government personnel) and employment/professional tax.
income tax regime
  • Interest paid on a home loan for a self-occupied or vacant house property is tax deductible: Interest paid on a housing loan for such a property might be deducted from revenue from a house property that resulted in a loss (because the property was self-occupied or unoccupied). This loss could be offset against salary income, lowering taxable income and lowering net tax liability. This is covered in section 24.
  • Section 57, clause (iia), allows a deduction of Rs 15000 from the family pension.
  • The most frequently claimed deductions under section 80C shall be eliminated as well. This includes the often claimed section 80C deductions for provident fund contributions, life insurance premiums, children’s school tuition fees, and different specified investments such as ELSS, NPS, and PPF, among others.

Investment restrictions on tax-saving fixed deposits, income tax

However, deductions under section 80CCD (employer contribution on employee’s behalf in notified pension scheme—mostly NPS) and section 80JJAA (for new employment) can still be claimed.

  • The deduction for medical insurance premiums claimed under section 80D will also be lost.
  • Sections 80DD and 80DDB of the Internal Revenue Code do not allow for the claim of disability payments.
  • Section 80E will not allow you to claim a tax deduction on interest paid on a student loan.
  • Section 80G, which provides a tax benefit for charitable contributions, would no longer be available.

All deductions under Chapter VIA (such as sections 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, 80IB, 80-IBA, 80IB, 80-IBA, 80IB, 80-IBA, 80I

The above are only a few of the 70 tax deductions and exemptions that will be eliminated under the proposed new tax system.

Which tax deductions are possible under the new tax law?

Under the new tax scheme, a person can claim a deduction under Section 80CCD(2). The employer’s contribution to the employee’s NPS account is deductible under Section 80CCD (2).

Under the new tax structure, can I claim a tax exemption on HRA and LTA?

No, under the new tax structure, you cannot claim a tax exemption on HRA and LTA.

Is the section 80D deduction still available under the new tax law?

No, if a person has chosen the new tax regime, he or she cannot claim the 80D deduction.

Salaried employee? The income tax calculation for FY 2022-23

Salaried employee? Here’s how your CTC will be taxed.

CTC Income Tax Calculation for Salaried Employees

A salaried employee’s CTC in a private company is made up of several components. Basic Salary, House Rent Allowance (HRA), Dearness Allowance, Conveyance Allowance, Entertainment Allowance, medical allowances, Provident Fund, food allowance, and so on are examples of these benefits. The CTC components differ from one organisation to the next, depending on the perks or allowances/benefits it offers its employees.

According to the terms of the Income Tax Act, 1961, some of these components are entirely taxable or fully exempt, and others enjoy a partial exemption.

Under section 10[14] of the Income Tax Act, allowances such as Daily allowance, Uniform allowance, and Research allowance are tax-free. Perquisites, on the other hand, are typically taxed in a certain way under the IT Act.

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Take, for example, the Employee Stock Option Plan (ESOP) — an employee benefit plan that allows employees to own stock in a company. Employees are frequently offered shares at a lower price than Fair Market Value. The difference between the two prices will be taxable as perquisite u/s 17(2)(vi) of the IT Act if such ESOP options are granted to employees.

 how various components of CTC are charged in an email exchange with FE Online. Take a look at this:

Basic Salary

Basic wage is always taxed in full.

HRA

If a taxpayer receiving House Rent Allowance (HRA) pays rent for residential housing, he can claim exemption under section 10[13A], subject to the lower of the following indicated limits, i.e.

  • The amount actually received
  • 50% of pay if residing in a metropolis (e.g., Mumbai, Delhi, Chennai, and Kolkata), and 40% of salary in all other circumstances.
  • Rent equal to or greater than 10% of pay
income tax

Salary would be defined as basic salary plus Dearness allowance [if it is part of retirement benefits] and commission received on the basis of turnover for the purpose of calculating the exempt HRA amount.

If a taxpayer receives HRA but does not pay rent, the entire amount of HRA is taxable.

Pay that fluctuates

Variable pay is the percentage of an employee’s salary that is based on their performance and is completely taxed.

Reimbursement (transportation, books and newspapers/periodicals, mobile, entertainment, and so on.)

Allowances given to employees for official purposes are exempt from tax under section 10(14) of the IT Act, provided that such expenses are genuinely incurred by employees. To claim exemption, the employee needs have the applicable bills and vouchers.

As a result, the conveyance allowance is exempt to the extent of the expense. Similarly, reimbursement for books, newspapers, and periodicals may be claimed as an exemption under section 10(14), although reimbursement for mobile phone charges is exempt under Rule 3(7)(ix) of the IT Rules.

In the case of private employees, however, entertainment allowance is entirely taxable. If such an entertainment allowance is given to employees to compensate expenses for the hospitality of the company’s clients, it can be claimed as an exemption under section 10(14) of the IT Act.

Investment restrictions on tax-saving fixed deposits, income tax

Allowance for travel while on leave (LTA)

The taxpayer must meet the following conditions in order to claim an exemption with respect to Leave Travel Allowance/Concession u/s 10(5):

  • The taxpayer makes the actual journey.
  • Only domestic travel is taken into account when claiming this exemption.
  • Employees alone or with their families are eligible for an exemption; family members include the employee’s spouse, children, dependent parents, siblings and sisters. However, more than two children born after October 1, 1998 are not eligible for the exemption. Furthermore, this restriction is unaffected in cases of multiple births on a second occasion after having one child.
  • The LTA exemption can only be used twice in a four-year period, for a total of two journeys (2022-2025). The amount of the exemption varies depending on the manner of travel. In the event of air travel, for example, the lesser of actual expenses incurred or economy class fare would be permitted.

Bonus

Bonus is fully taxable

Gratuity

If you receive a gratuity during your work, it is entirely taxable. Gratuity received at the time of retirement, on the other hand, would be taxed differently depending on whether or not the employer is covered by the Payment of Gratuity Act.

  • The least of the following is exempt u/s 10(10) of the IT Act if the employer is covered under the Payment of Gratuity Act:
  • The amount actually received
  • A sum of Rs. 20,00,000
  • 15 days salary based on last drawn salary for each completed year of service or part thereof in excess of 6 months (i.e. 15/26 * Salary p.m. * Years of Service Completed)

Salary would be defined as Basic Salary p.m. plus Dearness Allowance for the purposes of the aforementioned calculation.

The least of the following is exempt if the employer is not covered by the Payment of Gratuity Act.

  • Amount actually received
  • 20,00,000 rupees
  • Half month’s compensation for each completed year of service. (i.e. 12 * Average Salary p.m. * Years of Service Completed) Any fraction of a year will be discarded when computing completed years.

Average Salary p.m. would entail Average Basic Salary of the last 10 months + Dearness allowance of the last 10 months [if it forms part of retirement benefits] and Average Commission paid on the basis of turnover of the last 10 months.