Cash Transaction Limit in India – cash payment and cash receipt

Cash transactions are the main source of tax evasion, black money and malpractices. That is the reason Government encourages digital and cashless economy. In order to limit cash transactions in businesses, Indian government has implemented various sections which can prevent such tax evasion, black money and malpractices. If the assessee crosses the prescribed cash transaction limit in India, heavy penalties will be imposed on the assessee that can be up to 100% of the amount paid/ or received.

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Cash Transactions under GST

Many have confusion regarding the amount of cash sale or purchase permissible under GST. Good News is that there is no such provision in GST regarding cash transactions. Therefore under GST there is no any cash limit and no penalty will be levied on cash sale or purchase. However, the Income tax Act put restrictions on the cash transactions.

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Cash transactions under Income Tax Act

There are mainly four sections which put restrictions on the cash transactions in Income Tax Act, 1961. Following are some cases that restrict the cash transaction in income tax:

1. Business Payments Limit– Cash Payment exceeding 10,000 are disallowed (Section 40A(3))

The assessee has incurred any expenditure and the payment or aggregate of payments made in a single day to single person in respect of such expenditure exceeds Rs 10,000 (in case of payment made for plying, hiring or leasing goods carriages the limit shall be replaced by Rs 35,000) shall be disallowed if the payment has been made otherwise then by way of account payee cheque or account payee draft or use of electronic clearing systems through a bank account.

In other words, payment in cash for more than Rs 10,000 per person cannot be made for any business payment. Also, As per section 43 for acquiring any capital assets of more than Rs 10,000 payment cannot be made in cash.

This section is not applicable in cases covered under Rule 6DD of the Income Tax rules

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2. Business Accepting Limit: Cash Receipt of Rs 2 lakh or more (Section 269ST)

No person shall receive an amount of Rs 2 Lakh or more;

• in aggregate from a person in a day, or
• in respect of a single transaction,
• or, in respect of transactions relating to one event or occasion from a person,

Otherwise by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account.

If there is any violation of the law, then the recipient of the amount will be liable under section 271D of Income Tax Act. The amount of penalty will be sum equal to amount received by a recipient.

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Examples regarding section 269ST and cash transaction limit:

1. BabaTax buys a watch worth Rs 2 Lakh and pays the amount by cash to Mr. Shyamlal on a single day in 5 equal installments of Rs 40,000 each. As Shyamlal accepted cash worth Rs 2 Lakh from a single person and in a single day, section 269ST is applicable in this case. Mr. Shyamlal will be liable for a penalty of Rs 2 Lakh.

2. Mr R goes through a medical surgery and the hospital charges him a bill of Rs 4 Lakh. R clears the bill in 4 installments of Rs 1 Lakh each on four different dates. Here, the cash receipts got by hospital are less than Rs 2 Lakh received on different dates but it is related to a single bill/ single transaction. Here, Hospital will be liable for the penalty. So, splitting of payments over several days will also attract penalty.

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3. Deposit Receiving Limit (Section 269 SS)

As per the section of 269SS of Income Tax Act, any person shall not take or accept any loan or deposit or any specified sum from any other person in cash exceeding Rs 20,000. If any person violate the rule then the person will be liable to pay the penalty of sum equal to the loan amount.

For example,

1. BabaTax accepts 4 cash deposit for a sum of Rs.5000 each from a single person, which makes total Rs 20,000.

2. Mr Z has taken a loan of Rs. 19,000 by cash and he wants to take another loan from the same person, say for Rs.4000 in cash.

3. Mr Y has taken a loan of Rs.15000 by cash and he takes further Cash loan of Rs.6000 from Mr X.

In above all the three cases, a penalty equal to the amount of such loan or deposit or specified sum may be levied.

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4. Amount Repaying Limit (Section 269 T)

As per the section of 269T of Income Tax Act, any person shall not repay or deposit any loan or advance in cash exceeding Rs 20,000. If any person violate the rule then the person will be liable to pay the penalty of sum equal to the loan amount.

For example,

1. BabaTax can not repay a sum of Rs.20000 in cash to a single person.

2. Mr Y has repaid a loan of Rs.15000 by cash to Mr X and he wants to further Repay Cash loan of Rs.6000 to Mr Z.

In both the cases, a penalty equal to the amount of such loan or deposit or specified sum may be levied by the tax officer.

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The section 269T, 269SS and 269ST do not apply to any loan or deposit or specified sum taken or accepted from, or any loan or deposit or specified sum taken or accepted by

(a) Government;
(b) any banking company, post office savings bank or co-operative bank ;
(c) any corporation established by a Central, State or Provincial Act ;
(d) any Government company as defined in section in clause (45) of section 2 of the Companies Act, 2013
(e) other notified insititutions
(f) where the depositor and the acceptor are both having agricultural income and neither of them have any taxable income.

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The author of above article is Shruti Jain and Riya Thawani.

Disclaimer:The article or blog or post (by whatever name) in this website is based on the writer’s personal views and interpretation of Act. The writer does not accept any liabilities for any loss or damage of any kind arising out of information and for any actions taken in reliance thereon. 
Also, www.babatax.com and its members do not accept any liability, obligation or responsibility for author’s article and understanding of user.

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