Cash Transactions Limits: The Income Tax Department has recently issued an E-Flyer detailing the cash transaction limits and emphasized the significant consequences associated with certain types of cash transactions. The Tax Department strongly encourages taxpayers and business professionals to avoid engaging in cash transactions entirely, as failure to do so may result in severe repercussions.
Cash Transactions Limits with certain characteristics can have negative effects:
1. Acceptance of Certain Loans and Deposits
No one is allowed to take monetary payments of 20,000 rupees or more.
a) in the case of any loan or deposit,
b) any sum related to the transfer of any immovable property (even if the transfer is not completed).
If any cash received from a person for any such purpose is still outstanding to be repaid, then the overall limit of Rs. 20,000/- will apply to the outstanding amount plus any subsequent receipt in cash.
The following items are exempt from this rule:
This kind of money is accepted from –
(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 clause (45) of section 2 of the Companies Act, 2013;
(e) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, by notification in the Official Gazette, specify.
(f) from a person having agriculture income, and the recipient is also having agriculture income and neither of them is chargeable to income tax.
Consequences of violation: A fine in the amount of the cash seized will be imposed.
Read more: Cash Transaction Limit in India – cash payment and cash receipt
2. Certain Loans or Deposits Must Be Repaid
Any branch of a banking company or a cooperative society, firm or other person is not allowed to repay any loan or deposit in cash if:
(a) The amount of the loan or deposit or specified advance* together with the interest, if any, is Rs.20,000 or more, or
(b) The aggregate amount of loans or deposits or specified advance held by such person, either in his own name or jointly with other person on the date of such repayment together with the interest, if any, is Rs.20,000 or more.
(c) w.e.f 2019-20. TDS@2% to be deducted on cash withdrawals of Rs. 1 Crore in a year from bank account for business purpose.
to any person who has made
a) the loan or deposit or
b) paid the specified advance*.
This clause is not applicable to:
Repayment of any loan, deposit, or defined amount* received from or made payable to:
(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 clause (45) of section 2 of the Companies Act, 2013;
(e) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, by notification in the Official Gazette, specify. (Refer Sec.269T)
*Specified advance means any sum of money in the nature of advance, by whatever name called in relation to transfer of an immovable property, whether or not transfer takes place.
Consequences of violation : Penalty for an amount equal to the amount of such loan or deposit repaid will be levied.
Read Also: Bank FD vs Senior Citizen Savings Scheme (SCSS): Interest rate, tenure, tax benefits
3. Additional Cash Transaction
No person is allowed to receive in cash an amount of Rs. 2,00,000 or more-
(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 provision does not apply to-
(i) any receipt by-
(a) Government;
(b) any banking company, post office savings bank or co-operative bank;
(ii) transactions of the nature referred to in section 2695S;
(iii) such other persons or class of persons or receipts, which the Central Government may, by notification in the Official Gazette, specify. ( Refer Section 2695T)
(d) w.e.f 2019-20, Digital payments (Mode of electronic payments) are permissible in addition to account payee cheque, account payee bank draft or electronic clearing system through a bank account. Persons having business income and turnover/ receipt exceeding 50 crores in a financial year are mandatorily required to accept payment through prescribed electronic mode or other electronic mode only. In case of failure to do so, it would attract a penalty of Rs. 5000/- for every day during which such failure continues.
Consequences of violation of this provision: penalty u/s. 271 DA is levied for a sum equal to the amount of such receipt.
Read more: Cash Transaction Restrictions & Top 10 High value cash transaction that lead to IT Notice
4. Disallowance of Cash-Paid Expenses
In case a person incurs any expenditure for his business or profession, in respect of which payment or aggregate of payments made in cash in a day exceeds Rs. 10,000, 100% of such payment will be disallowed while computing his taxable income from business/ profession. (Refer to Section 40A(3)). However, some exceptions are provided (See Rule 60D of the Income Tax Rules).
5. Deemed Income of the Year Following the Year of Payment
In case an allowance has been made in respect of any liability incurred by a person for any expenditure, and then during any subsequent year the person makes payment in respect thereof in cash, the payment is chargeable to income-tax as income of the subsequent year if the payment or aggregate of payments made to a person in a day exceeds Rs.10,000.
In case payment is being made for plying, hiring or leasing goods carriages, then the limit is Rs.35000, instead of Rs. 1,00,000/-.
Read Also: Tax on cash deposit and withdrawal; Everything you need to know
6. Disallowance for Capital Expenditures, or Fixed Assets,
In case a person incurs any expenditure for acquisition of any asset in respect which a payment or aggregate of payments made to a person in cash in a day exceeds Rs.10,000/-, such expenditure is not included for the purposes of determination of actual cost of such asset. This means that no depreciation benefit will be available on such capital expenditure incurred in cash.
7. Donations in cash
Donation made in cash to a registered trust or political party, if exceeds Rs. 2000, are not allowable as deduction u/s 80G.
8. Health Insurance Premiums
Any payment made in cash on account of premium on health insurance facilities is not allowable as deduction u/s 80D of IT Act.
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