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2 Feb 2017

Cash deals capped at Rs 3 lakh

Sambit Saha, TT, Calcutta, Feb. 1: The Narendra Modi government has decided to limit cash transactions to Rs 3 lakh per person per day and slap heavy penalty on the recipient for breaching that ceiling in a bid to curb generation of black money and promote a less-cash economy.
The Union budget introduced a provision in the Income Tax Act prohibiting anyone, barring a few institutions like banks and post offices, to receive Rs 3 lakh or more from a person in a day either by single or multiple transactions in cash. Such payments can only be made by an account payee cheque or electronic transfer.
"The special investigation team set up by the government on black money has suggested that no transaction above Rs 3 lakh should be permitted in cash. The government has decided to accept the proposal," finance minister Arun Jaitley said in his budget speech.
Economist Dipankar Dasgupta, however, said: "This provision goes against the legal tender status of the Indian rupee. It should be perfectly allowable if an individual deals in cash if he pays all the statutory taxes and duties. Why should the freedom from an individual be taken away?"
The Centre first imposed a limit on the use of cash following the announcement of demonetisation on November 8. The RBI still caps withdrawal of cash from savings accounts at Rs 24,000 a week. But the apex bank has promised to relax it in the near future.
The budget proposal signals the government's resolve to clamp down on cash transactions on a long-term basis and bring India into a coven of nations that limit cash transactions.
"In India, the quantum of domestic black money is huge which adversely affect the revenue of the government creating resource crunch for its various welfare means. Black money is generally transacted in cash and huge amount of unaccounted wealth is stored and used in cash," the budget documents said.
In the US, the recipient of a cash payment of $10,000 or more has to compulsorily file a form with Internal Revenue Service, identifying the purchaser. Several western countries, with notable exception of Germany, also impose curbs on single transactions.In India, it is proposed that "no person shall receive an amount of Rs 3 lakh or more a) in aggregate from a person in a day b) in respect of a single transaction or c) in respect of transactions relating to one event or occasion from a person." The provision means that an individual's ability to use cash is being curbed only moderately as he can make multiple transactions of Rs 3 lakh to multiple merchants.
The budget proposes harsh penalties. "The penalty is proposed to be a sum equal to the amount of such receipt," says the explanatory memorandum to Finance Bill 2017.
Individuals may also be able to avoid paying the penalty "if the person proves that there were good and sufficient reasons for such contravention. It is also proposed that any such penalty shall be levied by the joint commissioner".

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