The Indian government has been taking several steps in the recent past to encourage the use of digital means to undertake financial transactions. The government, through its digital India program, has promoted the use of a smartphone for the financial transactions and it also intends the people to use banking channels through conventional digital modes like NEFT, RTGS, Mobile Banking, etc. With the introduction of Unified Payment Interface (UPI), there has been a revolution and a change in the way India make payments. The Indian government has also been taking several measures to discourage cash transactions and move our economy towards less cash economy. The government demonetized old currency notes on 08th November, 2016 with a view to stop the circulation of black money in the country. The government has introduced several provisions to the Income Tax Act, 1961 (‘the Act’) to discourage the receipt/payments in cash to prevent black money and regulate the cash transactions in the country. So far, these measures have brought transparency of flow of funds. Some of the important provisions of the Act have been summarized in the below table to discourage the use of cash:
| Sections | Limit | What if Limit Crossed |
| 13A(d) – Special provision relating to incomes of political parties. | 2000 | Exemption Disallowed |
| Donation Received by Political Parties | ||
| 35AD – Deduction in respect of expenditure on specified business. | 10000 | Deduction Disallowed |
| Deduction in respect of expenditure on specified business | ||
| 40A(3) – Expenses or payments not deductible in certain circumstances. | Deduction Disallowed | |
| Expenses or payments not deductible in certain circumstances | 10000 | |
| Payments made for plying, hiring or leasing goods carriages (Exception Rule 6DD) | 35000 | |
| 43(1) – Definitions of certain terms relevant to income from profits and gains of business or profession. | 10000 | Not to be included in Actual Cost so no depreciation |
| Expenditure of Acquisition of any Asset | ||
| 80D(2B) – Deduction in respect of health insurance premia. | Nil | Deduction Disallowed |
| (Exception Preventive Health Check-up to the extent of Rs. 5000/-) | ||
| 80G(5D) – Deduction in respect of donations to certain funds, charitable institutions | 2000 | Deduction Disallowed |
| 80GGA(2A) – Deduction in respect of certain donations for scientific research or rural development. | 2000 | Deduction Disallowed |
| 80GGB – Deduction in respect of contributions given by companies to political parties. | Nil | Deduction Disallowed |
| 80GGC – Deduction in respect of contributions given by any person to political parties. | Nil | Deduction Disallowed |
| 269SS – Mode of taking or accepting certain loans, deposits and specified sum | 20000 | 100% Penalty as per S.271D |
| (Specified sum means any sum of money receivable in relation to transfer of an immovable property) | ||
| (Exception if both are having agricultural income & neither of them has any taxable income) | ||
| 269T – Mode of repayment of certain loans or deposits | 20000 | 100% Penalty as per S.271E |
| 269ST – Mode of undertaking transactions. | 200000 | 100% Penalty as per S.271DA |
| (Other Cash Transactions)(Not Applicable if transactions covered u/s 269SS) | ||
| 269SU – Acceptance of payment through prescribed electronic modes. | Nil | Per Day 5000 till such failure continous S.271DB |
| (If Previous year turnover is exceeding Rs.50 Crore) | ||
| 194N – Payment of certain amounts in cash Cash withdrawal from Banks/Post Office | < 1 Crore | TDS @2% if ITR filed for 3 Preceding P.Y. |
| < 20 Lakhs | TDS @2% if ITR not filed for 3 Preceding P.Y. | |
| < 1 Crore | TDS @5% if ITR not filed for 3 Preceding P.Y. | |
| 44AB(a) – Audit of accounts of certain persons carrying on business or profession. | 10 Crore | Liable to Audit u/s 44AB |
| Threshold limit for Audit of Accounts increased to Rs.10 Crore if Cash transactions do not exceed 5% | ||
| The Payment of receipt, as the case may be, by a cheque drawn on bank or by a bank draft which is not account payee, shall be deemed to be in cash |
Reducing the dependence of Indian economy on cash is desirable for a variety of reasons. India has one of the highest cash to gross domestic product ratio in the world, and lubricating economic activity with paper has costs. Also, a shift away from cash will make it more difficult for tax evaders to hide their income, a substantial benefit in a country that is fiscally constrained. To be sure, the government on its part is working at various levels to reduce the dependence on cash. In order to move our economy towards Less Cash economy, track the flow of funds, discourage the cash transactions, circulation and prevention of black money in economy, some specific provisions have been made in this regard such as Section 68, 69,69A,69B, 69C, 69D of the Income Tax Act 1961. At the time Government of India announced the Demonetization, the digital transactions got boosted tremendously with the help and support of few digital players. Today, there are multiple digital players operating in this area via Unified Payment Interface transactions, digital wallets, prepaid cards where these are used instead of cash. The ease of making payments and no-hassled to carry cash, Indians have adopted to this new normal since it is easy to use, secured, convenient and with a lower transactions failure rate. We expect that the government will come up with more measures in the future to check the flow of cash in the economy with a step towards Less Cash economy.
