Under GST, there are certain types of transactions which are categorised as unexplained cash credits and cash transactions. This article will help you understand all those transactions and credits and their taxability as per section 68 of the CGST Act.
Unexplained cash credits mean:
Mr Rajat’s bank statements showed a credit amount of Rs 2,00,000. When the assessing officer inquired about the source of cash and nature of the transaction, he was unable to provide the same.
Ideally, here, Mr Rajat has to provide the details (name of the lender, his PAN, etc.) to the assessing officer when he enquired. In the absence of valid source to cite, the deposited amount of Rs 2,00,000 will be treated as an unexplained cash credit.
In the above scenario of Mr Rajat, in case he would have provided details, but the assessing officer would not have satisfied with it, the deposited amount of Rs 2,00,000 is treated as an unexplained cash credit.
This was the example of entrepreneurs. In case of companies, unexplained cash credit refers to the amounts of share application money, share premium or share capital that is credited, but no explanation is received from the resident assessee. Or the explanation is provided by the resident assessee, but the assessing officer is not satisfied with the explanation offered.
However, in case the person in whose favour such amount is credited/recorded in the books of such company is either a venture capital fund or a venture capital company as per section 10(23FB), the above discussed special provision will not apply.
Quick Tip: In simple terms, unexplained cash credit means the amount credited in your books of accounts, but its source and nature are not disclosed.
Even though the explanation of the source and nature of cash credit is either missing or not justified, the same amount would be treated as taxable income in the year in which it is credited.
Unexplained cash credits or cash transactions are taxed at the rate of 30% in addition to tax, cess and surcharge .
For assessees carrying on business, will have to pay tax on any cash payment made above Rs 10,000 in a single day. If the cash payment limit exceeds Rs 10,000, the same will not be treated as an expenditure and tax have to be paid along with it.
Mr Mukesh is a freelance tutor. To develop his own educational website, he purchased a domain name and paid the amount of Rs 12,500 in cash. Here, this payment would not be treated as an expenditure but the cash payment amount will also include the applicable amount of tax. In other words, since the payment beyond the cash limit of Rs 10,000 is done in cash, it will not be deducted from his total tutoring fees received for the year.
Further, while accepting a cash payment, under section 269ST, a person should not exceed the limit of Rs 2,00,000 in hard cash:
However, such payments are acceptable in the form of ECS, cheque or demand drafts.
This section 269ST that explains restrictions on cash transactions is not applicable to:
Post demonetisation in the country, the law has become more stringent to control high-value transactions in money. In case, if any transaction violates section 269ST, penalties under the section 271DA is applicable.
Since the government has become stricter to curb the black money, there are penalties for tax evaders. Under section 271DA, any person violating the provisions of section 269ST, will be liable to pay penalty. The amount of penalty equates to 100% amount of the cash received.
These are the key points which need to be adhered to avoid penalties and obey cash payment limit under GST.
Last, but not the least – Existence of ‘books of accounts’ is mandatory to appeal section 68. Any sort of scraps of papers or loose sheets are not accepted as books of accounts as they can be easily replaced or detached.
After the implementation of GST, the tax compliance requirements changed drastically. As a result, several businesses find it challenging to focus on their business while trying to be GST compliant. This is where we come into the picture. Our team of in-house GST experts can help you meet all the GST compliance requirements right from registration and filing of returns to handling notices.
We hope, this guide answers all the questions you had about GST on unexplained cash credits and cash transactions. If you still have any question in mind, you can post it on our TaxForum to get it answered from a tax expert.