Lockdown and Cashless Economy

From last few years, the Government of India pushed for the cashless economy as they find this as one of the major driver to curb the black economy.    There are numbers of ways by which a person can make online payment without any hassles and today people preferred to make the online payment rather than cash payment.  Thus, the concept of online payment is gaining popularity amongst Indians.

Further, to stop the habit of cash payment the government brings the following restrictions through Income tax laws.

(i)                 Section 40A(3) -  any business payment in cash exceeding Rs. 10,000/- will attract disallowance.

(ii)               Section 269SS & 269T -  acceptance of loan and repayment of the loan in cash exceeding Rs. 20,000/- attract penalty under section 271D and 271E.

(iii)             269ST -  receipts in cash exceeding Rs. 200,000/- attract a penalty which is equivalent to the sum received in cash.

All the above was fine till March 15, 2020.  Then suddenly with the increasing case of COVID-19 in India,  the Government of India declared lockdown from March 22, 2020.  Due to this lockdown, every business is closed other than medicine, grocery, milk, vegetables and other necessities.  There is a rush to all these stores as people don’t know whether tomorrow they will able to get their provisions.  People are approaching all kinds of vendors, big or small to stock their necessities and suddenly there is an increase in the volume of cash transactions as a number of retailers are not accepting online payment. 

Following will be the outcome due to the chaos of lockdown.

01.  All banks were closed and hence no one can deposit the cash into bank .  Retailers are now having a big balance of cash due to sales but unable to deposit into the bank as banks are closed. They are unable to make any online payment to their wholesale suppliers as there is no balance in their bank and left with no choice but make a cash payment to their suppliers.  This will result in the following tax laws violations.

(i)                 Payments made by retailers were disallowed under section 40A(3)

(ii)               Payments received by suppliers were subject to penalty under section 269ST.

 

02.  There is a demand of cash and all ATM were now running out of cash as there is no infrastructure to fill the cash into this ATM’s. Peoples are having balance in their bank account but now they need cash for their survival.  This arises to a situation now where people are taking advances and repaying advances in cash. This leads to violation of  section 269SS and 269T of tax laws

There may be end numbers of situations where people are violating these tax rules because of only reason as they have to survive. The government of India provided a number of relaxations in tax laws during this lockdown but ignored the penal consequences on a cash payment which cannot be now avoided during this incredibly challenging time .  There is a request to policymakers to look into the genuine hardship caused by people and ease the law accordingly.