Income Tax

1. Overview               2. Type of Taxes                 3. Definitions               4. Heads of Income           5. Deductions           6. Exemption            7. Tax upon clubbing of Income                         8. Avoidance of double taxation                             9. Income Tax Return (ITR)                      10. Notice from Income Tax                                 11. Miscellaneous

1. 1. An Individual
      
   2. A HUF (Hindu Undivided Family)
      
   3. A Company
      
   4. A Firm
      
   5. An association of person or body of individuals
      
   6. A local Authority
      
   7. Every artificial and juridical person who is not included in any of the above mentioned category.
      

1. Heads of Income
   

2. The Taxable heads of Income under this act are the incomes which arises out of – (i) Income from Salary (ii) Income from house properties (iii) Income from Capital gains (iv) Income from Profit or gains from business or profession (v) Income from other source.
   

3. Income from Salary:
   Income from salary consists of all remuneration due or paid to a person for services rendered by him/her as an employee. If an individual receives salary income from more than one employer during the year, the income from each source is taxable as ‘salary’ in the hands of the employee. Thus, the salary received from all the employers during the year is taxable in aggregate in the employee’s hands. Under Section 17(1) of the Income Tax Act, salary includes the following:
   
   1. Wages
      
   2. Annuity or pension
      
   3. Gratuity
      
   4. Any fee, commission, perquisite in lieu of or in addition to any salary or wages.
      
   5. Any advance of salary
      
   6. The amount contributed by an employer towards a Recognized Provident Fund (RPF) in excess of 12 per cent of the employee’s salary and the interest in excess of 12 per cent on the balance in the RPF.
      
   7. Any payment received in respect of any period of leave not availed.
      
   8. The value of any perquisites and benefits to the employee provided by the employer.
      
   9. Any profit in lieu of salary, that is, any amount or compensation due to or received by an employee from his/her employer, or former employer, at or in connection with the termination of his/her employment or modifications of the terms and conditions of the employment.
      
   10. Any taxable amount in the RPF transferred from one employer to the other.
       

With effect from April 1, 2002, salary also includes the value of any other fringe benefit or amenity provided by the employer to his employee, as may be prescribed.

4.3    Income from house properties:
The annual value of property, consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him, the profits of which are chargeable to income tax, shall be chargeable to income tax under the head “Income from House Property“.

The annual value of any property owned is taxable under the head ‘income from house property’. While there are a few deductions available from this income, income from a property is not taxable under the head ‘income from house property’ when…

1. The property is used for one’s own business or profession.
   
2. The property is self-occupied.
   
3. It is income from a farmhouse.
   
4. It is the property income of a local authority.
   
5. It is the property income of a university or an educational institution.
   
6. It is the property income of a trade union.
   
7. It is property held for charitable or religious purposes.
   
8. It is the property income of a political party.
   
9. It is the property income of an approved scientific research association.
   

Annual value of the house property: The annual value of house property is defined as- ‘the amount for which the property may reasonably be expected to be let out for a year‘.

However, if the property is let out for the whole or a part of the financial year, the gross annual value will be the amount received during the year as a result of the letting out of the house property. This shall also exclude the rent that the taxpayer is unable to realize in the financial year.

The following four factors have to be taken into consideration while determining the annual value:

1. Rent payable by the tenant.
   
2. Municipal valuation of the property.
   
3. Fair rental value (market value of a similar property in the same area) of the property.
   
4. Standard rent payable under the Rent Control Act.
   

Gross Annual Value:
In the case of self-occupied property, the annual value is taken to be ‘nil’.

In the case of property that is rented out, the gross annual value is the municipal value, the ‘de facto rent’ (whether received or receivable) or the fair rental value, whichever is highest. If, however, the Rent Control Act applies to the property, the gross value cannot exceed the ‘de facto rent’ or the standard rent under the Rent Control Act, whichever is higher.

4.4    Income from Capital gains:
In simple terms, a capital gain is the profit from the sale of a capital asset (including investments such as shares and bonds). The loss on the sale of such assets is treated as a capital loss. A capital gain on the sale of an asset is chargeable to tax as capital gains in the year in which it is sold. Under the Indian Income Tax Act, capital gains are taxed on even the transfer of a capital asset, not merely on sale. The word ‘transfer’ includes the following:

1. The exchange or relinquishment of an asset or the extinguishment of any rights in an asset.
   
2. The acquisition of an asset.
   
3. The conversion of an investment into stock-in-trade. This means, if you buy, say, shares as an investment, and later want to trade in them, then on the day you make the change, you will have converted your asset into stock-in-trade. The difference in the cost and the market price on the date of the conversion is treated as capital gains in your hand. However, this capital gain is liable to tax not in the year of conversion, but in the year in which the converted asset is sold or transferred.
   
4. In the case of immovable property like land or a building, the transfer is complete when possession is handed over to the buyer. Thus, tax is payable on the gains when possession is handed over even if the sale deed has not been executed or the property registered.
   
5. Any transaction which in effect transfers or gives the benefits of immovable property, for instance, in cases where you buy shares in a co-operative society.
   

Capital asset means property of any kind held by an assessee whether or not connected with his business or profession. A capital asset is property of any kind held by a person, irrespective of whether it is connected with the business. However, this does not include:

1. Stock-in-trade, raw materials and stores held for business purposes.
   
2. Personal effects, that is, movable property, including clothes and furniture, but excluding jewellery for personal use.
   
3. Rural agricultural land
   
4. Gold Deposit Bonds issued under the Gold Deposit Scheme 1999.
   

4.5        Income from Profit or gains from business or profession: The following income is chargeable under the head ‘profits and gains from business or profession’:

1. Gains from any business carried on by the assessee during the year.
   
2. Income derived from trade, profession or any other similar service.
   
3. Export-oriented units that are now to be taxed only to the extent of 20 per cent of the total profits spread over five years.
   
4. Interest, salary, bonus, commission or remuneration due or receivable by the partner from the partnership firm.
   
5. Income from speculative transactions
   

For charging the income under the head “Profits and Gains of business,” the following conditions should be satisfied:

• there should be a business or profession
  
• the business or profession should be carried on by the assessee.
  
• the business or profession should have been carried on by the assessee at any time during the previous year.
  

4.6    Income from other sources:
All incomes are charged under this head other than discussed in Para 4.2 to 4.5

5     Deductions

5.1    Amount of expenditure incurred by individual towards specific investment, donations, insurance etc. These amounts are deducted from Gross Total Income before computing tax liability. According to the Income Tax Act 1961, there is a provision that an assessee can claim deductions under certain sections of this act to reduce his/her taxable income. These different sections that offer deductions are discussed in success paras.

5.2    Section 80C (Ceiling: Rs. 1,50,000):
Under section 80C of the income tax, an assessee is eligible to claim deductions up to Rs. 1, 50,000 and can reduce his/her taxable income by Rs. 1,5,000 by investing this amount in tax-saving instruments. An individual or Hindu Undivided Family (HUF) is eligible to claim deductions under this section.

The investments which qualify for deductions under section 80C are listed as follows:

5.3    Section 80CCC (Ceiling: Rs. ) :
Under Section 80CCC, tax benefits on expenses accrued for buying or continuing annuity plans/retirement plans allowing eligible investors to gain more benefits. Only individuals and HUF are eligible to file deductions under this section. A few points to remember here are:

• Interests or bonuses earned from this plan do not qualify for deductions.
  
• The amount received after the surrender of plan attracts tax.
  
• Pension amount received is taxable.
  

5.4    Section 80CCD (Ceiling: Rs. 50,000):
Section 80CCD deals with contributions made to two Government pension schemes: (i) National Pension Scheme (NPS) & (ii) Atal Pension Yojana (APY). There are two parts to this section:

• Section 80CCD (1): It deals with tax deductions for employees of Central Government/Other/ Employer/Self-employed, salaries employees to enjoy a maximum deduction of 10% of salary. Self-employed tax-payers see a deduction of 10% of gross income.
  
• Section 80CCD (2): This section deals with the employer’s contribution towards NPS. An employee can claim a deduction if his or her employer makes payment to employee’s NPS account. The limit is 10% of employee’s salary.
  
• Section 80CCD (1B): An additional tax-benefit of Rs. 50,000 is possible under Section 80CCD (1B) for investments made in the NPS. Thus, the total tax savings can go up to Rs. 2,00,000.
  

5.5     Section 80D
(Ceiling: Rs. 25,000/Rs. 50,000 for Senior Citizen): Under section 80D, a person can claim income tax deduction for medical expenses and health insurance premiums.

5.6    Section 80DD (Ceiling: Rs. 50,000):
Tax deduction under this section can be claimed by individuals who are resident of India and HUFs for the medical treatment of a dependant with disability/disabilities or differently abled.

5.7    Section 80DDB:
Tax deductions under section 80DDB of Income Tax Act 1961 can be claimed for medical expenses incurred for medical treatment of specific illnesses.

5.8    Section 80E (Ceiling: Rs. Full amount of interest till refund of loan or 8 years whichever is earlier):
Payment of interest on Education Loan.

5.9    Section 80EE (Ceiling: Rs. 50,000): Payment of interest on Housing Loan availed during 01/04/2016 to 31/03/2017 (Loan amount upto 35 Lakhs).

5.10     Section 80EEA (Ceiling: Rs. 1,50,000 ):
Interest on Housing Loan availed during Financial Year 2019-20 onwards provided the stamp duty of the House does not exceed Rs. 45 Lakhs. This not in addition to Rs. 2,00,000 u/s 24 and Rs. 50,000 u/s 80EE.

5.11    Section 80EEB (Ceiling: Rs. 1,50,000):
Interest on loan availd on purchase of any electronic vehicle during Financial Year 2019-20 onwards.

5.12    Section 80G (Ceiling: Rs. 100% or 50% of the donation amount/Case upto Rs. 2,000):
Donation to certain funds to charitable institutions Ex.- PMNRF, PM Cares fund etc. Deduction depends on government order for the institutions.

5.13    Section 80GG (Ceiling: Rs. 60,000):
Not drawing HRA and residing in a rented/tenanted house.

    

5.14    Section 80GGA (Ceiling: 100%/Rs. 10,000 only as cash): Certain donation for scientific research or rural development.

5.15
Section 80GGC (100%/Only Rs. 2000 as cash):

Donation to Political parties.

5.16 Section 80TTA (Ceiling: Rs. 10,000):
Interest on saving account for person below

the age of 60 years. This deduction is available to an Individual and HUF.

5.17    Section 80TTB (Ceiling: Rs. 50,000):
Interest on saving account for Sr. citizen persons. This deduction is available to an Individual and HUF.

5.18 Section 80U (Ceiling: Rs. 75,000/Rs. 1,25000):
Under Section 80U, physically

disabled persons can claim deductions – (a) Rs. 75,000 of disability is between 40% to 79% (b) Rs. 1.25,000 if disability is 80% and above.

5.19    Section 24 (Ceiling: Rs. 2,00,000):
Deduction on interest part paid on account of Housing Loan repayment.

6 Exemption

6.1    It is the part of income which is not taxable. It is required to be deducted before computing Gross Total Income (Defined at Para 3.7). Section 10 gives list of incomes which are exempt from tax. The details of exemption as guaranteed by this act can be known by this link – https://www.incometaxindia.gov.in/tutorials/11.tax%20free%20incomes%20final.pdf

6.2    Section 10(1):
Details of exemptions are discussed in section 10 which can be seen by opening the above mentioned link. However, exemption regarding agricultural income is required to be discussed in detail. As per section 10(1), Agricultural income is exempted from income tax. Agricultural income is defined under section 2(1A) of the Income Tax Act, 1961. According to this Section, agricultural income generally means: (a) Any rent or revenue derived from land which is situated in India and is used for agricultural purposes. (b) Any income derived from such land by agriculture operations including processing of agricultural produce so as to render it fit for the market or sale of such produce. (c) Any income attributable to a farm house subject to satisfaction of certain conditions specified in this regard in section 2(1A). (d) Any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income.

    The following are some of the examples of agricultural income:

• Income derived from sale of replanted trees.
  
• Income from sale of seeds.
  
• Rent received for agricultural land.
  
• Income from growing flowers and creepers.
  
• Profits received from a partner from a firm engaged in agricultural produce or activities.
  
• Interest on capital that a partner from a firm, engaged in agricultural operations, receives.
  

The following are some of the examples of non-agricultural income:

• Income from poultry farming.
  
• Income from bee hiving.
  
• Any dividend that an organization pays from its agriculture income.
  
• Income from the sale of spontaneously grown trees.
  
• Income from dairy farming.
  
• Income from salt produced after the land has flooded with sea water.
  
• Purchase of standing crop.
  
• Royalty income from mines.
  
• Income from butter and cheese making.
  
• Receipts from TV serial shooting in farm house.
  

6.3    Section 54 provides exemption from capital gains arising on transfer of residential house. In this part you can gain knowledge about various provisions of section 54 relating to emption from capital gains arising on transfer of residential house if the taxpayer purchases/constructs another residential house. Details of exemptions in this section can be known from – https://www.incometaxindia.gov.in/tutorials/16.%20exemption%20under%2054.pdf

6.4    HRA exemption u/s 10(13A) & 2A:
When house rent is paid by a tax payer then least of the following is exempted:

    (a) Actual HRA received.

    (b) 40% of Salary (50% in case of Delhi, Kolkata, Mumbai & Chennai)

    (c) Rent paid minus 10% of salary (Salary = Basic + DA).

    Note: (i) Fully taxable, if HRA is received by an employee who is living in his own house or if he does not pay rent.

    (ii) It is mandatory for employee to report PAN No. of the Land lord to the employer if rent paid is more than Rs. 1,00,000 vide circular No. 08/2013 dtd: 10/10/2013.

7. Tax upon clubbing of Income

7.1    The total income of an individual also includes certain income of other persons.

     These are:-

• income of spouse from remuneration derived from the concern in which the individual is substantially interested unless the remuneration is by virtue of the application of  technical or professional skill possessed by him or her;
  
• assets transferred by the individual to the spouse or to any other person for the benefit of the spouse unless the transfer is for adequate consideration or in   consideration of an agreement to live apart.
  
• income of son’s wife from assets transferred by the individual to her or to any other person for her benefit unless the transfer is for adequate consideration.
  
• income of his minor child – other than the minor child suffering from disability specified in section 80-U, except when such income arises to the child on account of any manual work done by him or on account of any activity which involves application of any skill, talent or specialized knowledge and experience.
  

7.2    The individual in whose income the income of other spouse as mentioned in (a) (i) above is to be included will be the husband or wife whose total income – before including such remuneration income – is greater. Similarly, the income of minor child is to be included in the income of the parent having greater income. If the marriage of the parents does not subsist, it will be parent who maintains the child.

8 Avoidance of double taxation

8.1    Since a ‘resident’ is liable to pay tax in India on his ‘total world income’, it is possible that he may have to pay tax on his foreign income in that country also, where it is earned. Such situation leads to double taxation of the same income -in India and again in the country where it is earned. To avoid such a situation, the Government of India has entered into agreements for avoidance of double taxation with different countries.

8.2    TDS (Tax deducted at source): Under TDS, tax is deducted at the source-of-income, by the employer or the payer and paid to the government. It includes salary, interest, commission and contract fees, rent, professional fees, etc. This type of deduction is popularly known as TDS. Such tax is subject to certain limits and certain conditions.

8.3    In case of senior citizen, if he/she estimates that the tax on the income is nil, Form No.15H duly filled and signed is to be submitted in duplicate to the bank. So, no TDS will be deducted. If the total income is less than the threshold limit, Form No.15G is to be submitted to the payer to prevent TDS from such interest.

8.4    TCS (Tax collected at source): Unlike tax deducted at source, TCS is collected by a seller of certain specified goods at the specified rates on the purchase of the goods and it is remitted to the treasury on behalf of the buyer. In the same way, a person granting a lease or license in a parking lot, toll-plaza, etc. collects the taxes at the specified rates as tax paid on behalf of the lessee.

8.5    Advance Tax: Advance Tax is paid by the income earner during the previous year. The computing of the liability of advance tax is done by estimating the ‘total income’ for the year, calculating the surcharge and taking into consideration the rebate that will be available. The advance tax is required to be paid in three instalments. The due date for payment of advance tax is:

9 Income Tax Return (ITR)

9.1    As per section 139(1) of this act, every person whose total income exceeds 2,50,000 during Financial Year, he/she required to file ITR

9.2    Types of ITR forms: Different types of ITR forms used to file ITR. Hence, it is important to discuss in detail about different types of ITR so that one may be able to choose right ITR form for oneself. The details are discussed below:

ITR-1 or SAHAJ

This form must be used by resident Indians who fall under the below-mentioned categories:

• Income is generated from a pension or salary
  
• Income is generated from a single house property. However, in case the losses have been brought forward from the previous year, exclusion is allowed.
  
• In case an income of not more than Rs.5,000 is generated from agriculture.
  
• The total income that is generated can be a maximum of Rs.50 lakh.
  
• Income that has been generated from other sources such as winning horse races, lottery, etc.
  

Who cannot opt for this form?: Individuals who fall under the below-mentioned categories cannot opt for ITR-1:

• In case the total income that has been generated is more than Rs.50,000.
  
• In case individuals have capital gains that are taxable.
  
• In case income is generated from more than one house property.
  
• During the financial year, if any investments were present in unlisted equity shares.
  
• In case you are a Non-Resident Indian (NRI) and Resident Not Ordinary Resident (RNOR).
  
• In case income that is generated from agriculture is more than Rs.5,000.
  
• In case income is generated from profession or business.
  
• In case the individual is the director of a company.
  
• In case any income is generated from a property that is located outside India.
  
• In case an individual has foreign assets or foreign income.
  

ITR-2

ITR-2 form must be used by individuals and Hindu Undivided Families (HUFs) who fall under the below-mentioned categories:

• Income of the individual must be more than Rs.50 lakh.
  
• Income can be generated via a pension or from salary.
  
• Income that is generated from house property.
  
• Income that is generated from winning a lottery or horse races.
  
• In case the individual is the Director of a company.
  
• Agricultural income of the individual is more than Rs.5,000.
  
• Income has been generated from capital gains.
  
• In case any investments were present in equity shares that were unlisted during the financial year.
  
• Income is generated from foreign income and foreign assets.
  

Who cannot opt for this form?: Individuals who make an income from profession and business can opt for the form.

ITR-3

This form must be chosen by individuals and HUFs who make an income from a profession or from a proprietorship business. The below mentioned individuals can opt for the ITR-3 form:

• Individuals who are generating an income from a profession or business.
  
• In case any investments were present in equity shares that were unlisted at any time during the financial year.
  
• In case the individual is a partner in a firm.
  
• In case the individual is a Director of a company.
  
• If income is generated from a pension or salary, house property, or any other source of income.
  
• Turnover of the business exceeds Rs.2 crore.
  

ITR-4 or Sugam

In case HUFs, Partnership Firms, and individuals who are Indian residents generate an income from a profession or business, they must opt for ITR-4. However, Limited Liability Partnerships (LLPs) cannot opt for this form. Individuals who have also chosen the presumptive income scheme according to Section 44AD, Section 44ADA, and Section 44AE of the Income Tax Act 1961, should also opt for this form.

Who cannot opt for this form? : The below-mentioned individuals and HUFs are not allowed to opt for ITR-4:

• In case the total income that has been generated is more Rs.50 lakh.
  
• In case any losses have been brought forward from previous years.
  
• In case the individual has a signing authority at a place that is not located in India.
  
• In case any investments are present in equity shares that are unlisted at any time during the financial year.
  
• In case individuals have foreign assets or have generated a foreign income.
  
• In case the income has been generated from more than one house property.
  
• In case the individual is a Director of a company.
  
• In case the individual is a non-resident or an RNOR.
  

ITR-5

Investment funds, Business trusts, Estate of insolvent, Estate of deceased, Artificial Juridical Person (AJP), Body of Individuals (BOIs), Associations of Persons (AOPs), LLPs, and firms must opt for ITR-5 form.

ITR-6

ITR-6, For any companies that are not claiming exemptions under Section 11, this form must be chosen. Companies that are filing returns under this section can only do it electronically.

ITR-7

ITR-7, Individuals and companies that have furnished returns under Section 139(4A), Section 139(4B), Section 139(4C), Section 139(4D), Section 139(4E), or Section 139(4F) must opt for this form.

9.3    Before filing ITR, it is advised to go through Form 26As for the Financial Year and the amount deducted and reflect must meet with the actual tax liability as per income for the said Financial Year.

9.4    Time schedule of filing ITR:
The time schedule of filing ITR is given below:

9.5    In case of failure of filing ITR, Prosecution may be initiated under section 276CC provided the tax payable by the assessee is Rs. 10,000 or more.

10 Notice form Income Tax

10.1    Notice from Income Tax:
There are various reasons when Income Tax department serves notice to the individuals. Taxpayers, in general, are issued income tax notices under Section 139(9), 143(1), 143(2), 143(3), 245, 144, 147 and 148 of Income Tax Act, 1961 regarding non-filing of ITR, concealment of taxable income, claiming an in genuine tax refund, computing excessive tax losses, long term capital gains (LTCG), scrutiny etc.” The different circumstances under which Income Tax issues notice are discussed in successive paras.

10.2    For delay filing I-T return: Filing Income Tax Return where the individual has taxable income is mandated under section 139(1). For delay, a notice under section 142(1)(i) may be issued requiring the taxpayer to furnish the return if not filed within the due date.

10.3    For TDS claimed not matching with Form 26AS:
Notices for TDS mismatch are issued under section 143(1). If in the case of mismatch, the assessee has to approach the respective deductor to update their reporting.” After 26As is updated and required deducted amount is reflected the same may be reverted by means of response online.

10.4    For non-disclosure of income: If you some income is not shown while filing ITR, then a notice from the income tax department may be served if they detect the non-reportage. Notice is issued under section 139(9) or 143(1) for non-disclosure of income.

10.5    For not declaring investments made in the name of spouse:
If an asset is acquired in the name of the spouse through the income of the taxpayer, the income arising out of such asset, if any, needs to be clubbed in the hands of the taxpayer. Failure to declare the income therein could be considered as tax evasion resulting in the addition of the income along with interest and penalty. Generally the revenue authorities would issue a notice under Section 143(2) for detailed audit/scrutiny of the tax return filed and income generated through investment in the name of a spouse could be questioned by the authorities during the assessment proceedings.

10.6    For filing defective return: If Income Tax Return is not
filed in the correct form, one will receive a defective return notice from the income tax department. A defective return notice under section 139(9) of the Income Tax Act will be served. Once the notice is served, it is required to respond to it within 15 days from the date of receiving the notice. In a scenario like this, if the ITR is incorrectly filed it is required to file a revised ITR. The revised ITR may be filed before the deadline ends.

10.7    Owing to high value transaction:
The income tax department identifies taxpayers who have made high-value transactions in any financial year but not yet filed an income tax return. The department can ask a tax payer to mention the source of funds for making such high-value transactions. a notice u/s 143(2) may also be issued.

10.8    If ITR is picked for scrutiny: A person can receive any notice specifically under section 143(2), it means your return filed is in under scrutiny by your Assessing Officer. The scrutiny can be related to mismatches or inaccurate reporting, return filed and all related documents, or it can be based on predefined criteria issued every year by the income tax department. receive any scrutiny related notice, the first thing you need to do is to check the validity of the notice and then respond to it accordingly in the specified time. If you fail to respond, the department can impose a penalty of Rs 10,000 according to section 272A of the Income Tax Act.

10.9    For tax evasion in earlier years:
under section 147 of the Income Tax Act, the department can issue a notice to the taxpayer. An Assessing Officer can pick tax returns for reassessment based on certain pre-defined criteria. This notice is issued in cases where the tax department is able to collate enough new information from alternative sources proving that taxpayer has by the reason of fraud, willful-misstatement or suppression of facts evaded taxes.

10.10    For setting off refunds against remaining tax payable:
If any one claimed a refund on the tax paid but there are still some previous tax dues payable by you, the Assessing Officer (A.O) may send you a notice. Notice is issued under section 245 for setting off refunds against the tax payable. In case there is an outstanding demand for the earlier tax years.

11 Miscellaneous

11.1    Tax on cash transaction:
There are several provisions to impose tax under this act on cash transactions. following are the main income tax sections that pertain to cash transaction limit:

• Section 40A(3) and Section 43 – Pertains to Cash Payment
  
• Section 269SS and Section 269ST – Pertains to Cash Receipts
  
• Section 269T – Pertains to Repayment of Certain Loans / Deposits
  

11.2    Section 40A(3):
Section 40A(3) of the Income Tax Act pertains to cash transaction limit for expenditure made in cash. Under Section 40A(3), if payment for any expenditure of over Rs.10,000 is made in cash, then the expenditure will be disallowed under the Income Tax Act. Hence, it is important for all taxpayers to make any payment for the expense over Rs.10,000 through banking channels like Debit Card, Account Transfer, Cheque or Demand Draft, Bankers Cheque etc.

11.3    Section 43:
Under section 43 of Income Tax Act, if payment of more than Rs.10,000 is made by a taxpayer for the acquisition of an asset by cash, the expenditure would be ignored for the purposes of determination of actual cost of the asset. Hence, it is important for all taxpayers acquiring assets to make all payments to the seller through banking channels.

11.4    Section 269SS :
Section 269SS prohibits a taxpayer from taking/accepting loans or deposits or a sum of more than Rs.20,000 in cash. All loans and deposits of more than Rs.20,000 must always be taken through a banking channel. Section 269SS of the Income Tax Act is however not applicable when accepting/taking loan or deposit from a person or entity mentioned below:

• Government;
  
• Any banking company, post office saving bank or co-operative bank;
  
• Any corporation established by a Central, State or Provincial Act
  
• Any Government company as defined in clause (45) of section 2 of the Companies Act, 2013
  
• An institution, association or body or class of institutions, associations or bodies notified by Central Government in the official gazette.
  

Finally, if the person from whom the loan or deposit is taken and the person by whom the loan or deposit is accepted, are both having agricultural income and neither have any income taxable under Income Tax Act, then the provisions of Section 269SS will not apply.

Penalty: Failure to comply with provisions of section 269SS could lead to a penalty equal to the amount of loan or deposit or specified sum accepted.

11.5    Section 269ST:
Section 269ST of the Income Tax Act provides that no person can receive an amount of INR 2 Lakhs or more in cash:-

• In aggregate from a person in a day;
  
• In respect of a single transaction; or
  
• In respect of transactions relating to one event or occasion from a person.
  

Provisions of Section 269ST are not applicable when cash of more than Rs.2 lakhs is received from the following persons:

• Government;
  
• Any banking company, post office saving bank or co-operative bank;
  
• An institution, association or body or class of institutions, associations or bodies notified by Central Government in its official gazette.
  

Penalty: As per section 271DA, in case of failure to comply with provisions of section 269ST, a penalty amount equal to the amount of receipt is payable.

11.6    Section 269T of Income Tax Act: Section 269T provides that any branch of a banking company or a co-operative society, firm or another person cannot repay any loan or deposit otherwise than by an account payee cheque or account payee bank draft drawn in the name of the person, who has made the loan or deposit, if:

• The amount of the loan or deposit together with interest is INR 20,000 or more; or
  
• The aggregate amount of loans or deposits held by such person, either in his name or jointly with another person on the date of such repayment together with interest is INR 20,000 or more.
  

Provisions of section 269T are not applicable when the loan is repaid or deposit taken or accepted from below mentioned person:

1. Government;
   
2. Any banking company, post office saving bank or co-operative bank;
   
3. Any corporation established by a Central, State or Provincial Act
   
4. Any Government company as defined in clause (45) of section 2 of the Companies Act, 2013
   
5. An institution, association or body or class of institutions, associations or bodies notified by Central Government in the official gazette.
   

Penalty: As per section 271E, in case of failure to comply with provisions of section 269T, penalty amount equal to the amount of loan or deposit repaid is payable.

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