We can look at suggesting some positive changes to Chapter 6E of the Income Tax Act, so that the tax collections of the country can increase. The deduction of Rs. 1,50,000 available under Chapter 6A can also be made available if the tax payer utilizes digital payment methods to purchase goods or services from a vendor with a valid GST number. By doing this, the concerned vendor would get “WHITE INCOME (DECLARABLE INCOME)”, which can cause the vendor to pay the applicable tax. This way, India’s consumption story can lead to an increase in direct tax collections and indirect tax collections for the country.
Today, when a consumer buys a product (like vegetables from a vendor, fruits from a vendor, medicines from a Pharmacy, food in a restaurant etc.), the customer has a wide choice in terms of how to pay for those vegetables / medicines / food items. These available payment methods include cash payment, and payment through digital methods like, CREDIT CARD / DEBIT CARD / UPI’s (like PAYTM / GOOGLE PAY etc.). This payment made to the vendor becomes an income for the vendor.
In an ideal world, every vendor receiving any payment from any customer would keep a proper record of the payment received, declare the entire income received and pay the applicable tax (this tax includes income tax, GST etc.).
However, we are not living in an ideal world. Unfortunately, in this real world, when the customer pays cash to the vendor, it is possible for that vendor to hide some or all the cash income being received and hence, also avoid paying the applicable taxes. As a result, the nation loses out on VALUABLE TAX REVENUES.
If the vendor receives payment through digital methods (and assuming that all those digital methods are linked to PAN of the vendor), then, this income received by the vendor gets recorded, the vendor is required to account for that income, and pay applicable tax to the concerned authorities. The digital payments being received by vendors can be tracked by concerned authorities. Needless to mention, all digital accounts need to be linked to the PAN (PERMANENT ACCOUNT NUMBER) of the vendor.
This shows that increasing the adoption of digital payments can result in increase in tax revenues of the Government.
However, at the moment, there is no incentive for a consumer to use Digital methods of payment while making the purchases. If the Government can incentivize consumers to use digital payment methods (without any additional loss of revenue to the Government), then, the tax revenues of the Government can increase.
There is a strong case of using the tax benefits under Chapter 6A (of INCOME TAX ACT), to incentivize tax payers (consumers) to use Digital Payment Methods.
It is important to understand Chapter VI A in detail. In a single Financial Year, the Chapter VI A allows a total deduction of Rs. 1,50,000 (Rupees One Lakh Fifty Thousand Only) on specific tax saving expenditures and donations (https://www.financialexpress.com/money/income-tax/deductions-under-chapter-vi-a-of-income-tax-act-know-how-much-tax-may-be-saved/1997441/)
Under Chapter VI A, the deduction limit of Rs 1.5 lakh per year has to be taken together with section 80CCC and section 80CCD(1).
The Section 80C allows deduction for investment made in PPF, EPF, LIC premium, Equity linked saving scheme, principal amount payment towards home loan, stamp duty and registration charges for purchase of property, Sukanya Sammruddhi Yojana (SSY), National Saving Certificate (NSC), Senior citizen Savings Scheme (SCSS), ULIP etc.
Section 80CCC of the Income Tax Act of 1961 provides deductions of up to Rs. 1.5 lakhs per annum for contributions made by an individual towards specified pension funds that are offered by life insurance. The deduction is within the limit of section 80C (https://cleartax.in/s/section-80ccc).
Section 80CCD relates to the deductions available to individuals against contributions made to the National Pension Scheme (NPS) or the Atal Pension Yojana (APY). Contributions made by the employers towards the NPS, also come under this section. NPS is a notified pension scheme from the Central Government.
So, it is recommended that a change be made in Chapter 6A, to also cover the following
“Utilizing Digital Payments to pay for purchases from vendors, provided the vendor has a valid GST number, and that such payments shall not include payment of life insurance premium and payment of EMI’s for housing loans, and that the concerned Digital Channels will include Credit Card, Debit Card, and UPI’s”
1.There will be incentive for tax paying consumers to make their purchases through Digital Channels. This will cause the concerned vendors getting “WHITE INCOME”. This “WHITE INCOME” can be tracked by Government Authorities and the vendor can pay applicable tax.
2.It may reduce the level of cash transactions and increase the level of Digital Payments
1.A taxpayer (customer) goes to a restaurant and spends say, Rs. 200 on a meal. If the taxpayer utilizes Digital Payment method to make the payment of Rs. 200, then, this amount of Rs. 200 should go towards the benefit under Chapter VI A. Since the restaurant gets the payment of Rs. 200 through Digital Methods, it would have to account for that receipt of money and would have to pay the applicable tax.
2.A taxpayer (customer) goes to a vegetable vendor and spends say, Rs. 500 on buying vegetables. If the taxpayer utilizes Digital Payment method to make the payment of Rs. 500, then, this amount of Rs. 500 should go towards the benefit under Chapter VI A. Since the vegetable vendor gets the payment of Rs. 500 through Digital Methods, he would have to account for that receipt of money and would have to pay the applicable tax.
3.A taxpayer (customer) takes his two wheeler to a garage for repairs and spends say, Rs. 650 on getting his two wheeler repaired. If the taxpayer utilizes Digital Payment method to make the payment of Rs. 650, then, this amount of Rs.650 should go towards the benefit under Chapter VI A. Since the garage gets the payment of Rs.650 through Digital Methods, it would have to account for that receipt of money and would have to pay the applicable tax.
4.A taxpayer (customer) wants to travel to another city, for which he utilizes the services of a Private Bus operator, and the bus fare is say Rs. 800. If the taxpayer utilizes Digital Payment method to make the payment of Rs. 800, then, this amount of Rs.800 should go towards the benefit under Chapter VI A. Since the Private Bus operator gets the payment of Rs.800 through Digital Methods, it would have to account for that receipt of money and would have to pay the applicable tax.
In all the above examples, the customer (taxpayer) would utilize the Digital Payment Methods to make the payment, since he / she is getting tax benefit under Chapter VI A.
Also, since the limit of Rs. 1,50,000 under Chapter VI A remains the same, the Government does not lose any extra revenue.
| The Taxpayer Wants To Purchase Products And Consume Services (Like Groceries, Fmcg Products, Food Items, Medical Consultation, Transport Services Etc.). Before Purchasing / Consuming, The Customer Makes Sure That The Concerned Seller / Service Provider Has A Gst Number |
| Customer Pays For The Product / Service Through Digital Payment Methods Like, Credit Card, Debit Card, Upi (Paytm, Google Pay Etc.) |
| The Amount Received By The Seller / Service Provider Becomes A “White Income” For The Concerned Seller / Service Provider. So The Seller Has To Pay Applicable Gst And Applicable Income Tax (That Is, Instead Of Getting Cash Amount, The Seller Gets Amount In Bank Account, All These Amounts Can Be Tracked, And Applicable Taxes Will Have To Be Paid) Also, On All Digital Payments, The Concerned Tds Canb Be Deducted., To Accouynt For The Tds, The Seller Has To File Retunrs There Is Applicable Tds |
| In The “Annual 6A Account” Of The Customer, The Message About The Amount Spent Comes To The Customer’S Mobile. This Message Contains The Amount Spent In The Particular Transaction And The Amount Remaining To Complete The Amount Of Rs. 1,50,000 For That Financial Year. |
| The “White Income” Of The Vendor Can Be Recorded And Tracked (Since These Digital Payments Are Linked To Pan), And The Tax Revenue Of The Government Can Increase. |
REFERENCES:
1.https://www.financialexpress.com/money/income-tax/deductions-under-chapter-vi-a-of-income-tax-act-know-how-much-tax-may-be-saved/1997441/-AS OF 10-06-2021
2.https://cleartax.in/s/section-80ccc-AS OF 13-06-2021
Prof. Pravin Narang
Assistant Professor,
DR VN BRIMS, Thane
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