1st Take: CBDT Clarification on Cash Acceptance - Relief for NBFCs
Section 269ST of the Income tax Act, introduced by the Finance Act, 2017 w.e.f. April 1, 2017 put certain restrictions on cash acceptance. Essentially, per the section, no person shall receive an amount of Rs200,000 or more in cash:
(a) in aggregate from a person in a day;
or (b) in respect of a single transaction;
or (c) in respect of transactions relating to one event or occasion from a person
This was cause for concern for NBFCs for whom share of cash in loan instalment collections is material. NBFCs, like MMFS and STFC in our coverage, have a high share of cash collections (~50-60%) as their borrower base earns primarily in cash. There was ambiguity on whether every instalment collection would be considered as a separate transaction or if all the instalments put together would be considered as one transaction. If the latter were to apply, there would have been issues with cash collections for NBFC / HFC loans with principal + interest over the term of the loan >Rs200,000. Note that though most microfinance companies currently collect almost 100% in cash, they are not affected by this section, as the overall loan + interest is much lower than Rs200,000.
Various NBFCs and HFCs had sent representations to CBDT (the tax authority) for clarification on this aspect.
CBDT has now issued a circular and clarified that receipt of one loan instalment will qualify as a separate transaction, thereby ending the ambiguity. It has clarified that all the instalments paid for a loan shall not be aggregated for the purposes of determining applicability of the provisions of section 269ST. This should come as a significant relief to NBFCs and HFCs, with collections in cash whose operations could have been significantly affected otherwise.
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