image: The hindu business line. 

In the last financial budget, the government has come up with the introduction of Section 269ST of the Income Tax Act, which states in detail that Section 269ST “prohibits any person to receive an amount of Rs.2 lakh or more in cash”:

(i) In aggregate from a person in a day, or
(ii) In a single transaction, or
(iii) In respect of transactions relating to one event or occasion from a person .

Few examples to understand the new tax amendment:

1. Suppose, Mr. X sells furniture worth Rs 4,50,000 and makes three different bills of Rs 1,50,000 and gives one to each person & accepts cash in a day, at different times, the Section 269 ST (a) will get violated.

1. Secondly, Mr. Y sells gold worth Rs5, 00,000 through a single bill to another person and receives cash of Rs 2, 50,000 on the first day and the remaining on the next day, then Section 269ST(B) gets violated.

1. Thirdly, Mr. Z accepts an order for catering, flowers & light decoration, occasion venue rent in respect for the event of marriage from Mr. A. He accepts cash of Rs 1,00,000 for the purpose of catering; Rs 1,50,000 for decoration; Rs 1,50,000 for the venue booking, then also section 269 ST(c) gets violated, even if he accepts cash on different dates because all the three transaction is relating to occasion of A’s marriage.

Thus, we can understand that in all the three cases, section 269ST gets violated and penalty u/s 271DA is applicable.

Penalty for violating Section 269ST:

If any person violates the provisions of Section 269ST or accepts any payment in conflict with the provisions, then he shall be liable to pay a penalty of sum which is equivalent to the amount of receipt under Section 271DA.

But in case the person can prove that there was sufficient and bonafied reasons for the breach of the section, no penalty shall be imposed.

However, it is being said that a transaction amount which is equivalent to Rs2 Lakh or more is permitted while doing transaction only through the use of electronic clearing system (which includes debit/credit card/Net Banking/IMPS/UPI/NEFT/RTGS/BHIM) via bank or account payee cheque or demand draft. Nonetheless, it can be said that this is an initiative taken by the government, in order to promote and boost up the digital economy.

Exemptions to Section 269ST of the Income Tax Act: 

• Though this section is not applicable to any receipt of amount by the government, any banking company, post office savings bank or co-operative bank, or any other person/receipts as may be notified.

• Also, transactions referred to in section 269SS (attracted when we accept loan from any person) will be excluded from the scope of the new section 269ST.

Thus, we can say that from now onwards cash transactions must be done vigilantly. Accepting any amount which is more than Rs 2Lakhs, received in form of cash, can impose penalty. This is to make the citizens more concern that transaction of lump sum amount of money must be done by the mode of bank payments only. Now-a-days, income tax laws are getting more firm for the taxpayers so that unaccounted income can be taken count of. 

Goods and services often include costs at every step of production. Earlier, these were added at every step of the production stage and taxed simultaneously. However, in order to simplify the system of multiple taxation and complications of filing several indirect taxes, the Government of India on July 1, 2017, introduced the Goods and Services Tax (GST). This is a cumulative tax on the costs of production. It is a single tax, which is typically levied on the seller and ultimately transferred to the government.  

Need for GST

The Indirect Tax regime in existence prior to the introduction of GST was inefficient and opaque. Disproportionate taxation was present. States had their own taxation requirements. Problems were made worse by the presence of cascading taxes. Taxes were collected at every stage, inevitably making the commodity’s price higher. The tax burden was pushed on to the final consumer. 

It became common to practise to evade taxes. Sales used to take place without an invoice, creating the problem of tax evasion. Value Added Tax (VAT) was brought in to tackle this problem but it had flaws of its own which prevented it from completely achieving its objective. 

The complex taxation structure was a problem for many foreign companies. Many companies sought to produce their own spare parts as to preclude the probable taxes that could become payable. Essentially the prior model was very restrictive for effective growth of trade it created more problems than it solved.

Working of GST

With the advent of GST all the various state and central taxes were replaced. A uniform tax rate was introduced across the Union of India 

As per this new regime, the Centre now collects the Central GST (CGST) and the States levies State GST (SGST) on the supply of goods within the state. The Integrated GST (IGST) is levied on interstate supply of goods and services within the state, though collected by the Centre this is distributed equally amongst the Centre and State. These taxes are levied according to the tax slab heads under which a good or a service falls. The same is decided by the GST Council.

The GST council is headed by Union Finance Minister acting as the Chairperson. Union Minster of State of Finance is a member from the Centre.  The states can nominate any Minster of their government as members to this council, it usually happens to be the Minster in charge of Finance.

This body takes all the key decisions with regards to amendments and changes in GST. Their constitutionally mandated role is to recommend to the Union and the States on various issues surrounding the GST like slab rates and goods falling within the same. 

Benefits gained from GST

GST created a uniform taxation system, removing the indirect tax barriers put in place effectively dealing with the problem of the multiple taxes present in states. The destination-based taxation model envisioned under GST helped in dealing with the challenge of cascading taxes. This led to lowering of the end costs and consequent reduction in the tax burden.   

The uniform and streamlined tax model is beneficial to the businesses as well. Less complexity surrounding investment decision making and other financial processes. Companies are now more willing to outsource the production of commodities/services enabling the creation of MSMEs generating further employment. 

One of the best aspects of this particular Tax model is reliance on Digital services. Compliances are filed digitally now and the details are available to a host of investigative agencies thereby reducing the prevalence of tax evasion. And more compliance results in more financial resources available at the disposal of the State, allowing it to carry out its functions efficiently.

Criticisms of GST

The well-intentioned reform is not without faults. Constant amount of changes that have been bought about since the rollout of GST have made compliance difficult. Many small businesses are not in a position to afford accountants to do such compliances, as they work in a very ad hoc manner. Even the big businesses are affected by the regular changes proposed. If compliance is the aim, then the entire procedure needs to be simplified otherwise the objective would never stand realised.

Conclusion

GST is the most massive change brought about in the Indian Tax system since Independence. The system is not without flaws, but they do not outweigh the positive aspects of the Act. In the long run this would indeed be successful in achieving its objectives.
 

ESOP stands for Employee Stock Ownership Plan. An employee stock ownership plan gives workers ownership interest in the company. Employee Stock Ownership Plan is a benefit scheme for the employees. The company or organization gives the benefit to the employees of buying the shares after a certain period of time. An employee must provide service or work for a definite period of time before receiving the benefit of Employee Stock Ownership Plan. 

There are two types of Employee Stock Ownership Plan-:

Selective Plans 

The facility of owning some shares of the company is made available only to the senior executives. 

All Employee Plans

The facility of owning some shares of the company is made available to all the employees of the company 

Why do the Companies offer Employee Stock Ownership Plan? 

The companies offer stocks to the employees in order to attract and retain skilled and experienced talent. They offer stocks to the employees in a phased manner, which is a form of an incentive for the employees to work with the company for a longer duration. Many a times start-up companies or companies which cannot provide high salaries provide Stock Options to their employees. 

Tax Implications

The Employee Stock Ownership Plan has tax implications. It is very important to understand this before exercising the option. ESOPs are taxed at two different stages-:

While exercising – in the form of a perquisite

In this option the difference between the Fair Market Value and exercise price is taxed 

While selling – in the form of capital gain.  

The employee can sell the shares received however there is a certain amount of time period after which the employee can buy and then sell the shares. At the time of selling if the employee gets money higher than that of Fair Market Value then he will be liable to pay the Capital Gains Tax. The amount of Capital Gains Tax is determined on the period of holding, i.e. from the date of exercise to the date of sale. 

Benefits of Employee Stock Ownership Plan to the Employers

When the employees are rewarded with stocks, they would by default give in their 100 percent of hard work and efforts as they themselves will also benefit when the prices of their company’s shares soar up. Rewarding the hard work and dedication of the employee’s work is necessary, by giving them stock would also remove the necessity of providing cash incentives to the employees at the same time giving them incentives. 

Challenges of having an Employee Stock Ownership Plan for the Employers

Employee Stock Ownership Plan has complex rules and regulations. Companies which provide Stock Ownership benefit to the employees must have a proper administration system which works towards providing of Stock ownership to the employees. If a company does not have proper staff to look into the administration of Employee Stock Ownership Plan then it could invite certain risk issues. Upon establishing Employee Stock Ownership Plan the company must have proper administration, staff, including third party administration, legal costs, trustees. It must be aware of the costs that will include while providing this facility. 

Disadvantages of Employee Stock Ownership Plan for the Employees 

Many times under this scheme the employees invest a large part of their savings in one investment scheme, which is not advisable. Any person saving more than 10 percent of his/her salary is warned by the investors. Ideally, it is not logical to save a large amount of savings in the company’s stocks, as if at any point the company fairs poorly or runs into losses then a huge amount of savings of an employee will be lost. 

An ESOP plan is one of the best ways for a startup to attract and retain talent. In order for the company to grant ESOPs to its employees, it needs to be registered as a Private Limited Company.