Government May Lower Penalty On Cash Transactions Exceeding Rs 3 Lakh, With A Caveat

The government is considering a proposal to lower the penalty on cash transactions exceeding Rs 3 lakh, but both parties may now have to pay up, two people with direct knowledge of the matter told BloombergQuint. The Union Budget 2017-18 had provided for a penalty only on the receiver.

The new proposal, one of many on the table, seeks to charge as penalty an amount exceeding Rs 3 lakh from each of the parties involved, the people cited above said. That is, if a person pays Rs 5 lakh in cash, both parties will have to pay Rs 2 lakh each as penalty.

The modalities will be worked out and tabled in the second part of the Budget session that starts March 9, one official said.

In a bid to curb black money and push digital transactions, the Union Budget 2017-18 had proposed a 100-percent penalty on cash payments of more than Rs 3 lakh. This meant that a person receiving Rs 4 lakh will be fined an equivalent amount.

According to one official, this 100-percent penalty is being debated as harsh, and not practical, so there is a proposal to alter it.

The penalty laid down in the Budget document could be waived if the person involved can prove that there were “good and sufficient reasons” for the payment, one of the officials said.

The industry had sought exemptions for cash payments made to labour contractors, Riaz Thingna, director at Grant Thornton Advisory told BloombergQuint.

"Various representations are being made that the penal provisions in the hands of the receiver can be unduly harsh in cases of genuine need for cash settlements. An example would be that of cash payments made to labour contractors for distribution of wages at construction sites in remote areas. One can reasonably expect the finance minister to carve out exemptions for such identified situations," Thingna said.