Contact Your Financial Adviser Money Making MC
6
July 2017
NBFC (The Total Investment & Insurance
Solutions)
One of
the major highlights of the Budget 2017 was the introduction of section 269ST
of the Income Tax Act, 1961. The section was introduced with an intention to
curb black money by reducing the scope of large ticket size cash transactions
in the economy. As per the provisions of the section, no person can accept an
amount of Rs2 lakh or more: The Total
Investment & Insurance Solutions
a. In
aggregate from a single person in a day;
b. In
respect of a single transaction;
c. In
respect of transactions relating to one event or occasion from a person.
This
section affected several businesses in the country, financial entities in
particular. During the course of business, financial entities, like non-banking
finance companies (NBFCs), often accept repayments through cash, even though
they lend out through banking channels, and this section was a certainly
something to worry about. The Total
Investment & Insurance Solutions
There
was a notion that if a loan is a transaction, then the instalments received
against such loan transaction would have to be aggregated for the purpose of
this section. This however was an unrealistic presumption because if one were
to take a view that all payments made by the borrower under a loan contract
will need to be aggregated, the amount that can be paid in cash, to avoid the
applicability of the section, under clause (a) and under clause (b), will
become completely disproportional. Clause (a) will capture the payments made in
a single day, whereas the clause (b) will capture payments made over the tenure
of the loan. Such wide amplitude is not the intent of the law.
For
instance, if there is an invoice of Rs3 lakh, which is paid over three
tranches, over three days, all in cash, the section shall get attracted.
However, where there is an invoice, which is payable in 12 monthly instalments,
one cannot argue that all the 12 instalments relate to a single transaction,
and therefore, need to be aggregated. The
Total Investment & Insurance Solutions
Therefore,
in the given example of extending of loan and accepting repayments in multiple
instalments, loan extended and each of the instalments accepted must be treated
as independent transactions for the purpose of section 269ST and must not be
seen on a cumulative basis.
Subsequent
to the introduction of the section, the Central Board of Direct Taxes (CBDT)
received representation from several financial institutions, pursuant to which
it came out with a clarification on 3 July 2017
stating: The Total Investment &
Insurance Solutions
...it
is clarified that in respect of receipt in the nature of repayment of loan by NBFCs
or HFCs, the receipt of one instalment of loan repayment in respect of a loan
shall constitute a ‘single transaction’ as specified in clause (b) of section
269ST of the Act and all the instalments paid for a loan shall not be
aggregated for the purposes of determining applicability of the provisions
section 269ST.
Therefore,
henceforth, for the purpose of section 269ST, NBFCs and housing finance
companies (HFCs) will not have to aggregate all the instalments received in
cash against a single loan transaction to see if it exceeds Rs2 lakh or not.
Each instalment will be treated as a separate transaction. So, if a single
instalment of say, Rs3 lakh, is split in two and paid in cash over two days,
then this section will get attracted. The
Total Investment & Insurance Solutions
The
position after this circular can be explained through the table below:
NBFC (The Total Investment & Insurance
Solutions)
After
this clarification, the NBFCs and HFCs will breathe a sigh of relief as this
was going to affect their business seriously.The Total Investment & Insurance Solutions
