Being digital – the new way of life!

February 8, 2017 12439 Views
Manish Bhatia
Manager - PWC
Kamal Abrol
Partner - PWC
Dipesh Panicker
Assistant Manager - PWC

I see technology as a means to empower and as a tool that bridges the distance between hope and opportunity

Narendra Modi

Budget 2017 is path-breaking for more than one reason. Foremost, for the first time in the history of independent India, the railway budget was fused into the general budget. Second, the hysteria surrounding the last day of February was moved to the first day of February. Third and possibly the most relevant today, Budget 2017 was presented against the backdrop of what is being touted as the biggest and boldest reform in the Indian political chronicle – "Demonetisation."

There are multiple reasons why nations demonetise their local units of currency. These include combatting corruption and discouraging a cash system1. Ever since the Hon'ble Prime Minister began his televised address on the reform, myriad reactions began pouring in from every nook and corner of the country and the world at large. Clearly, even the celebrated pundits of the industry failed to predict this move.

Amidst the hullabaloo, the government was carefully formulating schemes, developing mechanisms and rapidly engineering towards a "cash-less economy".

Intelligibly, it was no surprise that one of the theme of the Budget of 2017 was based around promoting digital economy, and a string of measures in this regard were introduced.

  •  In a bid to push digital payments among the poor and illiterate in rural areas of the country, the government is shortly launching Aadhar Pay, a merchant version of the Aadhar Enabled Payment System. This will be specifically beneficial to those who do not have debit cards, mobile wallets and mobile phones.

  •  Referral Bonus Scheme for individuals and Cashback Scheme for merchants to be launched to promote the use of BHIM mobile app.

  •  Service charge on e-tickets booked through the web portal of Railways has been withdrawn.

In addition to the above, Budget 2017 has proposed a host of tax amendments to promote a cash less economy (by incentivizing cash-less transactions and dis-incentivizing cash transactions). This article discusses various such measures proposed in the Budget in the ensuing paragraphs.

  •  Restricting cash donations

The government has proposed to amend section 80G of the Act, to reduce the threshold of cash donations eligible for deduction from existing INR 10,000 to INR 2,000.

  •  Capital expenditure in cash dissuaded

Currently, the provisions of the Act provide for disallowance of revenue expenditure incurred in cash above a specified threshold limit. However, there is no provision disallowing the capital expenditure incurred in cash. To discourage the use of cash for capital expenditure, it has been proposed that payment in excess of INR 10,000 in cash would not be included in the cost of asset for the purpose of computing depreciation. Similarly, investment linked deduction in respect of capital expenditure in specified business will not be allowed in case payment in cash exceeds INR 10,000 to a person in a day.

  •  Revenue expenditure in cash curtailed

The threshold for disallowance of cash payments for revenue expenditure has been reduced from INR 20,000 to INR 10,000. Furthermore, the mode of payment has been expanded to cover the use of electronic clearing system through a bank account in addition to an account payee bank cheque/ draft.

  •  Measures for promoting digital payments in case of small unorganised businesses introduced

Another move towards cash-less economy involves motivating small traders/ businesses2 to accept digital payments proactively by reducing the existing rate of deemed profit of 8% of the total turnover or gross receipts to 6%, in respect of the amount of total turnover or gross receipts received through digital means. This move by the government is laudable, as it seeks to put in motion the digital inclusion of even the smallest traders.

  •  Restriction on cash transactions

The government in order to achieve the mission of cashless economy has proposed to introduce new provision in the Act to provide that no person shall accept cash payments exceeding INR 3,00,000 and contravention with the provision would invite penalty equivalent to the value of transaction. Interestingly, the accountability has been fixed upon the person receiving the payment.

  •  Cash less electoral funding

The government has donned a bold face in proposing to bring an amendment stating that no political party can receive donations in cash in excess of INR 2,000 from a person. This reform is intended to bring transparency in the source of funding to political parties.

  •  Duties on point of sale card readers, finger print readers and similar devices proposed to be reduced/ removed to push cashless transactions.

Concluding remarks

The Digital India programme is a flagship programme of the Government of India with a vision to transform India into a digitally empowered society and knowledge economy3. With this vision in mind, the government has gone all out to advertise, promote, popularise the concept of a digital economy. Accordingly, relevant changes have been proposed and new provisions have been proposed to be introduced to set the country on a path of digitisation, by adopting a two-pronged approach of encouraging cashless transactions and penalising cash transactions.

Having said so, it may be a few years since we see ourselves truly and seamlessly digital given the concerns involving security of digital transactions, infrastructure build-up, resistance from different sections of the society and breaking away from the age old tradition of a cash based economy for the reason that old habits die hard.

A noble intention and perhaps a willing economy, it is imperative that concerns across the digital realm be responsively addressed to handle the plethora of perennially increasing day to day digital transactions to realise the dream of the government.



1. Source : Investopedia

2. With turnover less than INR 2,00,00,000

3. Source :

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