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Insight Into Benami Transactions (Prohibition) Amendment Act, 2016

An article on the Benami Transactions (Prohibition) Amendment Act, 2016

The article covers the background, legislative history, Key aspects, Officers’ Responsibilities and FAQs.

The article can be found here- https://taxguru.in/income-tax/insight-benami-transactions-prohibition-amendment-act-2016.html

Cashless Economy and the Role of Banks

Traditionally, Indian Economy had been an economy where cash has been the King in the settlement between various parties. This was mainly because organized banking had not spread throughout the length and breadth of the country.

However, the nationalization of the banks in the year 1969, by the Central Government to some extent had increased the reach of banks in the hinterland and to a great extent reduced the dependence of people from the clutches of unorganized rural bankers whose primary method of dealing was in cash.
Moreover, settling transactions in cash was easy and presented instant liquidity. However, on the flip side, many of the transactions were not captured by the revenue generating systems, thereby resulting in loss of revenue from both direct and indirect taxes to the exchequer. However, the nationalization of the banks in the year 1969, by the Central Government to some extent had increased the reach of banks in the hinterland and to a great extent reduced the dependence of people from the clutches of unorganized rural bankers whose primary method of dealing was in cash.

Identifying the weakness in cash-based system and to make the transactions more transparent was the need of the hour. To curtail the shadow economy and put a break on cash transaction, Honorable Prime Minister Narendra Modi Ji, brought in a series of measures to crack down on cash transactions, so that the revenue generating transactions could be captured by the revenue generating systems.
The hidden agenda in this, was to put a break on counterfeit currency which had flooded the market due to patronization from enemy countries, which ultimately found their way into terror activities directed against India by destroying its economy. Identifying the weakness in cash-based system and to make the transactions more transparent was the need of the hour. To curtail the shadow economy and put a break on cash transaction, Honorable Prime Minister Narendra Modi Ji, brought in a series of measures to crack down on cash transactions, so that the revenue generating transactions could be captured by the revenue generating systems.

Honorable Prime Minister Narendra Modi, visualized that an economy based on cashless transactions, would be in national interest and made it a priority for his Government.
By emphasizing on cashless transactions, the Government wanted people settling transactions to move away from cash-based settlement to digital settlement, where money is moved electronically. This method does not mean that cash will not be there, but it means that its presence and dependence is reduced.
Following the vision of the Honorable Prime Minister Narendra Modi, the Reserve Bank of India (RBI) and the Government have brought out several policy measures for the spread of awareness and implementing Electronic payments(e-payment). As a fallout, the Indian Government started promoting the non-cash transactions medium like prepaid card, Internet banking, mobile banking and wallets, Unified Payments Interface (UPI) and so on.

The opening of such accounts also facilitated cashless transactions in the hinterland of India and other policy features that benefited the people of the country include non-maintenance of minimum balance, cash backs and incentive for payments at petrol pumps, online merchants etc. resulting in a huge success among rural  and urban masses.

In addition to this the Government has also brought in various amendments, into Income tax Act, 1961 to curb cash transactions.  Some of them are dealt with below in brief

  • Tracking & curbing cash transactions and strengthening third party reporting mechanism: Quoting of PAN made mandatory for sale or purchase of any goods/services above Rs. 2 Lakh.
  • Restriction on cash transactions of Rs. 2 lakh or more (Section 269ST of I.T. Act)
  • No deduction under section 80G, if cash donation exceeds Rs. 2,000 w.e.f. 01.04.2018, restriction on donations of Rs.2000/- or more to political parties otherwise than by a bank account or through electoral bonds.
  • Restriction on cash transactions of Rs. 2 lakh or more (Section 269ST of I.T. Act)
  • Mandating that a person who has an account (other than a time deposit and a Basic Saving Bank Deposit Account) maintained with a banking company or a cooperative bank shall furnish his PAN or Form No. 60 etc.
  • In assessing certain presumptive business transactions u/s 44AD/44ADA the profits were taxed at 8% for cash receipts as against 6% for bank transactions.
  • Section 40A(3) of the Income tax Act, 1961 provides that any expenditure incurred in respect of which payment is made in a sum exceeding ₹10,000/- in a single day otherwise than by an account payee cheque drawn on a bank or by account payee bank draft or through use of electronic clearing system, shall not be allowed  as a deduction.
  • Any expenditure allowed on accrual basis in a previous year would be disallowed in the year of payment (in subsequent years), if the amount paid in cash exceeds ₹10,000/- as per Section 40A(3A).
  • Application of Section 40A(3) and 40A(3A) in determining application of income by charitable and religious trusts registered u/s 12A (Explanation 3 to Section 11)
  • Non-inclusion in the cost of the capital asset, of cash expenditure for purchase of capital assets in excess of ₹10,000/- (2nd Proviso to Section 43(1)).
  • Taking or accepting certain loans, deposits and specified sum in excess of ₹ 20,000/- as per Section 269SS.
  • Mandating disclosure of PAN by depositors for deposits over ₹50,000 into bank accounts.

In all this, the role of the banks was of paramount importance, as cash deposits into savings bank account in excess of certain threshold limits and reporting high value transactions became the responsibility of the banks. The reporting from banks to the respective authority became mandatory and was successful in capturing many transactions which had escaped the eagle eye of Taxmen.
In the latest Finance (No.2) Bill 2019, a further provision was brought in to provide for TDS at the rate of 2% on cash withdrawals by a person in excess of ₹ 1 crore in a financial year by inserting section 194N. If a person draws cash from one or more accounts, kept in a bank, Co-operative society, post office, confirming to certain conditions and exemptions, in excess if ₹ 1 crore by cash, TDS must be deducted at the rate of 2% on such excess withdrawal. This proposal  promotes cash less economy by discouraging cash transactions.

Now let us study the benefits of cashless economy

Environmental Benefits
Reduced dependence on paper currency leads to lesser usage of precious   natural resource like timber and thereby saving environment.

Audit Trail
The usage of digital transactions leads to an audit trail where both the payer and payee is captured by the system which results in better tax compliance and assurance to customer.

Increased Revenue
The cashless settlement ensures that the revenue collecting system captures the transaction as and when it happens thereby resulting in lesser evasion of tax and more revenue to the exchequer.

Increased Government Spending
With increased taxation revenue the Government can increase its spending on defence, welfare and infrastructure augmenting activities which increases the GDP of the country.

Reducing Counterfeit Currency
When the dependence on paper currency reduces, the cost of introducing counterfeit currency increases thereby making it difficult to operate the same and indirectly helping the national economy to grow and strengthen defence of the country.

Lower Transaction Costs
Cashless transaction is a value adding proposition, in the sense that the processing costs will be reduced and saving time on lengthy clearing process. Proper and scientific implementation will increase the frequency of production and consumption thereby leading to increase in national wealth.

From the above, we can see the advantages offered by digital payments and cashless economy in the overall development and growth of the country. One can say that by boosting the banking sector by providing necessary infrastructure AND ENCOURAGING the mechanism of digital payments it can be vital for both the revenue and development of the country. Further, the onus of reporting on such transactions is placed on banks to curb cash-based transactions.

Total digital transactions in volume terms recorded a growth rate of 58.8% during 2018-19, on top of a growth of 50.4% during 2017-18, the Reserve Bank of India said in a report. India’s push to build a less-cash economy seems to be gathering momentum with the central bank recording a phenomenal growth in digital transactions till March 2019 and setting an ambitious target to push up the volumes by four times by 2021.This also saw an increase in the revenue of banks from service charges.  However, with effect from 1st July 2019 the RBI has advised banks not to levy any charges on NEFT and RTGS transactions in order to encourage digital payments.

Further, an immediate fallout was decrease in stone pelting incident in Kashmir which was funded by illegal withdrawal of cash from Hawala bank accounts.

Such increase in digital banking will result in banks having surplus funds, which they can use in the financial system for lending, playing in call money markets and to making investments in the capital markets, thereby increasing the size of the economy of the country. In the long run the impact of digital payments will lead to transparency of transactions along with the elevation of collection of taxes and banks are envisioned as a partner to GOVERNMENT IN TRACKING AND REPORTING CASH TRANSACTIONS. This may also result in lowering of taxes. This policy thrust was a great success for the BJP led Government.

CA. K S Sridhar is the Author of this article and is a Practicing Chartered Accountant. The Author can be reached at kssa30@hotmail.com

Elections- Its Impact On Indian Economy

The coming elections will have a huge impact on the economy of the country. Many of the Make-in-India initiatives will bear fruit in the coming days and India shall need a stable Government to continue the same.
If the ruling party is elected, many of their infrastructure initiatives coupled with Make-in-India initiatives will be continued which will boost the economic performance of the nation. If they are not elected the new Government may revisit the program which will lead to delay in infrastructure development. For example, we are all aware as to what happened to Golden quadrilateral project.

Elections entails huge expenditure which may result in inflation and the New Government will have to balance the promises made with the expectation of people. Furthermore, the Defence sector needs huge investment and the Finance Minister will have to walk a tightrope in reducing taxes, increasing revenue and at the same time spending more on infrastructure which would spur the economic growth. The results of the election would greatly affect the flow of FDI and the opportunities for the Indian market globally.

The need of the hour is an educated choice of the voters to ensure the continuity which will spur economy and business.

Hoping for good times ahead for the economy and the profession. 

e-Form-ACTIVE (INC-22A)

Mandatory Active Company Tagging Identities and Verification (ACTIVE) as per Rule 25A of Companies (Incorporation) Rules, 2014 vide Companies (Incorporation) Amendment Rules, 2019 (a newly inserted provision) for companies incorporated on or before 31st December 2017

Provisions of the Act

Every company incorporated on or before the 31st December 2017 shall file the particulars of the company and its registered office, in e-Form ACTIVE (Active Company Tagging Identities and Verification) on or before 25-04-2019.

Companies Not Required to File the Form

  • Company which has not filed its due financial statements or annual returns or both with the Registrar for reasons other than management dispute and where the Registrar has recorded the same on the register (upto FY 2017-18)
  • Companies that are
    • struck off or
    • under the process of being struck off
  • Companies that are
    • amalgamated
    • dissolved or
    • under liquidation

Effects on your company

  • In case a company does not intimate the said particulars, the Company shall be marked as “ACTlVE-non-compliant” on or after 26th April 2019 and shall be liable for action under the provisions of the Act.
  • No request for recording the following event-based information or changes shall be accepted by the Registrar from such companies marked as “ACTIVE non-compliant unless e-Form ACTIVE is filed-
    • SH-07 (Change in Authorized Capital)
    • PAS-03 (Change in Paid-up Capital)
    • DIR- 12 (Changes in Director except cessation)
    • INC-22 (Change in Registered Office)
    • INC-28 (Amalgamation, de-merger
















Where a company files "e-Form ACTIVE", on
or after 26th April 2019, the company shall be marked as
"ACTIVE Compliant", on payment of fee of ₹10,000.



Details Required for filing the Form

  • Name and Registered Office of the Company
  • Latitude and Longitude of Registered Office
  • Email ID followed by an OTP Verification- mentioned in E-Form INC-22A (ACTIVE)
  • Stating whether the company is listed or not
  • Details of Directors
    • Number
    • Director’s Name
    • DIN and its status
  • Details of Statutory Auditors- Number of Auditors, Category, PAN of Auditor/ Firm, Membership No, Period of Accounts for which appointed
  • Details of Cost Auditor, where applicable
  • Details of KMP- MD/CEO/WTD (DIN/PAN, Name, Designation)
  • Details of Company Secretary, where applicable
  • Details of CFO, where applicable
  • Details of E-Forms- SRN of Annual forms AOC-4 and MGT-7 for FY-2017-18
  • Address Proof of Registered Office along with Photograph of the Registered Office showing External and Internal building
  • Office showing at least one director/ KMP who affixed his/her DSC in E-Form INC-22A
  • Any other optional attachments
  • Digital Signature of:
    • one director and one KMP or two directors in case of other than OPC
    • one director in case of One Person Company (OPC)

Certification of Professional (Chartered Accountant/ Cost Accountant/ Company Secretary) indicating whether the said professional is an Associate or Fellow along with Membership Number and Certificate of Practice Number

If you have any queries or questions, feel free to contact us.

Email: kssa30@hotmail.com / kssaca30@gmail.com
Website:kssaca.in