The Central Board of Direct Taxes (CBDT) has ended the ambiguity around cash acceptance restrictions on loan repayments made to non-banking finance companies (NBFCs) and housing finance companies (HFCs).

It has now made it clear that every instalment collection would be considered as a separate ‘single transaction’ for the purpose of determining the applicability of ₹2 lakh cash collection limit introduced in this year’s Budget.

All the instalments paid for a loan should not be aggregated for the purpose of determining applicability of Section 269ST, the CBDT said in a circular here.

Section 269ST is the provision that put restrictions on cash acceptance from April 1 this year. It may be recalled that the Centre had in this year’s Budget banned cash transactions of ₹2 lakh or more with effect from April 1.

As per Section 269 ST of the income tax law, no person can receive an amount of ₹2 lakh 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. Post this cash transaction norm coming into effect, NBFCs and HFCs had raised doubt as to whether this cash acceptance restriction applied to one instalment of loan repayment or the whole amount of such repayment.

This was cause of concern for NBFCs for whom share of cash in loan instalment collections is material. There are several NBFCs that have a high share of cash collections (50-60 per cent) as their borrowing base earns primarily in cash

Expert view Reacting to the CBDT clarification, Raman Aggarwal, Chairman, Finance Industry Development Council (FIDC), a representative body of asset-financing NBFCs, said that the tax department has removed all the doubts.

“They have clarified that limit of ₹2 lakh will apply to one single instalment payment and not the entire loan. There was doubt over what is single transaction as entire loan repayment could be considered as single transaction. Every Equated Monthly Instalment (EMI) will be one transaction and it is good for us now,” he said.

A Morgan Stanley research note said that CBDT clarification that all the instalments paid for a loan should not be aggregated (for the purpose of Section 269ST) should come as a “significant relief to NBFCs and HFCs” with collections in cash and whose operations could have been significantly affected otherwise.

Lending clarity: how it works

Take for instance a loan that involves repayment of say ₹9,000 (as loan instalment) in cash to a NBFC every month for say two years. Now, the doubt was whether every instalment collection (₹9,000) would be considered as a separate transaction or if all the instalments put together (₹2,16,000) would be considered as one transaction for applying the cash restriction limit.

The CBDT has clarified that receipt of one loan instalment will qualify as a separate transaction and not the aggregation of all loan instalments, thereby ending the ambiguity.

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