DID you know CASH transaction Limit under Income tax and GST and what are the HIGH value Transaction? This article will help you to solve your problems related to 2 important areas:
- Restriction on CASH transaction as per LAW
- TOP 10 High value cash transaction
Introduction:-
One needs to remain alert while doing any kind of High value cash transaction because the Income Tax Department has become highly vigilant about the cash transactions.
1st we have to understand what are High value + CASH Transaction?
High Value transactions are transactions which are incurred in high denominations.
First of we have to understand the provision under Income Tax and GST related to CASH Transaction.
Read Also: Income Tax Rates on individuals for FY 2020-21/ AY 2021-22
1. Restrictions on Cash Transactions under GST and Income Tax
There is NO such provision restricting the cash transaction under GST but Income tax, we have a following list of Transaction on which restriction imposed
Now, we will discuss one by one list of restriction on cash transaction under Income tax law: –
Section 13A –
No donation exceeding Rs. 2000/- can be received in cash by political parties.
Section 35AD –
The capital expenditure covered U/S 35AD shall NOT be allowed as deduction if paid in cash in excess of Rs. 10000/-.
Section 36-
Section36(1) (ib) puts restrictions on deduction for amount of premium paidby the employer for health insurance of its employees if paid in cash.
Section 40A (3) and 40A (3A) –
The deduction in computation of income from Business and Profession is NOT allowable in respect of which a payment or aggregate of payments made to a person in a DAY, otherwise than by a crossed account payee cheque or bank draft or use of electronic clearing system through a bank account exceeding Rs. 10,000/-.
This limit is extended to Rs. 35,000/- in the case of payment for transportation charges. Few exceptions are provided in Rule 6DD of Income Tax Rules.
Crux – NO PENALITY but expenses shall be DISALLOWED
Section 40A (3A) further provides if any amount is claimed as expenditure in any particular year and the cash payment exceeding Rs. 10000/- (35000/- fortransportation charges) is made in any subsequent year. The same will be ADDED to the income of that subsequent year.
Read Also: CBDT notifies New Income Tax Return (ITR) Forms for AY 2021-22
Section 43(1) –
Where an assessee incurs any expenditure for acquisition of any assets in excess of Rs. 10,000/– otherwise than by way of banking channels, the sameshall NOT be included in the cost of the asset, meaning thereby that the DEPRECIATION shall NOT be allowable on that cost.
Section 80D –
No deduction is allowed from gross total income if health insurance premium or medical expenditure on the health of the assessee or his parents or the dependent family members is paid in cash.
Section 80G –
No deduction is allowed for donation if paid in cash in excess ofRs.2000/-
Section 80GGA –
Donation in respect of scientific research or rural development are NOT deductible if paid in cash in excess of Rs. 10000/-
Section 80GGB –
The contribution made by an Indian Company to any political party or electoral trust is NOT allowed as deduction if paid in cash.
Section 80GGC –
The contribution made by any person other than Indian company to any political party or electoral trust is NOT allowed as deduction if paid in cash.
Section 80JJAA –
This section provides for a deduction of an amount equal to 30% of additional employee cost incurred in the course of such business in the previous year for three assessment years including the assessment year relevant to the previous year in which such employment is provided. The deduction is subject to the conditions specified in the section and that the payment is made by way of any of the modes other than by way of cash.
Section 269SS –
This section restricts to accept any loan, deposit and specified sum in cash if the sum (including earlier deposit) is Rs. 20,000/- or more.
Section 269T –
This section restricts to repayment of any loan, deposit and specified sum in cash if the sum is Rs. 20000/- or more.
Section 269ST-Restricition on cash transactions –
The section was introduced vide Finance Act, 2017 which prohibits the receiptof an amount of Rs. 2 Lakh or more by a person.
- In aggregate from a person in a day or,
- In respect of a single transaction or,
- In respect transactions relating to one event or occasion from a person.
Otherwise than by an account payee cheque/draft or use of electronic clearing system through a bank account.
Note:
- The above cash transaction limit is applicable on receiver and not the payer.
- Bearer cheque and Self cheque will also be considered as CASH for the purpose of this Section
Section 269SU (W.E.F. 01-11-2019) –
Every person, carrying on business, shall provide facility for accepting paymentthrough prescribed electronic modes, in addition to the facility for other electronic modes, of payment, if any, being provided by such person, if his total sales, turnover or gross receipt, as the case may be, in business exceeds 50 crore rupees during the immediately preceding previous year.
Penalty for contravention of the provisions of section 269SU can be imposed by Joint Commissioner which shall be 5000per day during which such failure continues after giving a show cause notice.
Incentive Provisions
Section 44AB –
Every person,-
Carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceeds or exceeds 1 crore rupees in any previous year.”
The following proviso shall be inserted through Finance Act 2020 w.e.f. A/Y2021-22:-
“Provided that in the case of person whose-
- Aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed5%, of the said amount, and
- Aggregate of all payments made including amount incurred for expenditure,in cash, during the previous year does NOT exceed 5% of the said payment,
This clause shall have effect as if for the words “one crore”, the words “five crore rupees” had been substituted”
Section 44AD (presumptive Taxation)
Normally an eligible assessee carrying on the eligible business on which provisions of section 44AD are applicable has to declare net profit @ 8% of turnover/gross receipts (up to turnover of 2 crore rupees). However a proviso was inserted w.e.f. 01/04/2017 to provide for a lower presumptive tax @ 6%shall be substituted for 8% in respect of the amount of turnover or gross receipts which is received through account payee cheque or any other modeprovided therein.
Sections 43CA, 50C and 56:-
Transactions relating to Real Estate.
The above said provisions provide that the consideration in respect of transfer of any immovable property shall NOT be LESS than stamp value fixed by the stamp valuation authority.
However, a relaxation has been provided that where the transaction is the result of an agreement executed earlier the value as per agreement may be adopted if any advance payment was made through account payee cheque or any other specified mode.
Compliances in respect of cash Transactions
Section 285BA–
The section makes it obligatory on certain persons to furnish details of cash receipts/deposits in excess of Rs. 200000/- as providedin section 285BA read with Rule 114E.
Section 194N (w.e.f. 01-09-2019) –
Every Person, from.-
- A banking, or
- A co-operative society engaged in carrying on the business of banking, or
- A post office
who is responsible for paying any sum, or, as the case may be, aggregate of sums, in cash, in excess of 1 crore during the previous year, to any person from one or more accounts maintained by the recipient with it shall, at the time of payment of such sum, deduct an amount equal to 2% of sum exceedingone crore rupees, as income tax.
Read Also: Income Tax: Highlights of Finance Bill 2021-22
II) 2nd Part of this article, we discussed on TOP 10 HIGH VALUE CASH TRANSACTION
Various transactions that may lead to income tax notice below are the top 10 transactions that can attract income tax notice if you FAIL to report in your return
| S.NO. | Particulars | Remark |
| 1 | For an individual, the cash deposit limit in savings bank account IF you have 2 saving bank account and the total Cash deposit/ Withdrawal/ Fixed deposit in a year, the Bank is required to report this to Department | Rs. 1 lakh in one’s savings account. 10 lakh in a year. |
| 2 | Amount of savings bank interest and FD interest earned by a person during the FY and the person fails to report the same in the ITR than the same may lead to under reporting of income and due to this the department may issue notice with respect to under reporting of income | In order to avoid such thing the assessee MUST have to report the same. |
| 3 | Cash deposit or cash withdraw to / from one or more Current Account | Rs. 50 lakh or more in a FY and will have to be reported by the bank to the I-T authorities. |
| 4 | Cash payment for purchase of bank drafts or pre-paid instrument issued by RBI will also be reported and also purchases of bank drafts, pay orders, purchase order’s or bankers cheque | Rs. 10 lakh or more in a financial year (Also be reported) |
| 5 | Investing in mutual funds, stocks, bond or debenture, share of company (listed or unlisted) | Beyond Rs. 10 lakh limit in a FY. |
| 6 | Credit Card bill payment – NOT to cross Rs.1 lakh limit in CASH | If you paid more than Rs.10 lakhs to a credit card company in a financial year than the Credit Card Company will report to Income Tax authority. |
| 7 | Bank Fixed Deposit | Cash deposit in bank FD is allowed but it should not go beyond Rs 10 lakh in a FY and bank will report it to Income Tax authority. |
8 | Purchase and sell of all immovable property exceeding Rs.30 Lakh. | Registrar of properties will have to report such transaction exceeding Rs. 30 lakh to the department. |
| 9 | Any person who is liable for Tax audit u/s 44AB Sale of goods or service. | Cash received for 2 lakhs or more for single transaction entered and such person is liable to report such transaction. |
| 10 | Expenditure in Foreign Currency via debit card, credit card of travellers cheque. | Rs. 10 lakh or above in a year and credit card company will report to department. |
Read Also: Income Tax Audit : New changes in TAR for AY 21-22
The author of the above article is CA Jayprakash Pandey. CA Jayprakash Pandey is a Practicing CA under the firm name Jayprakash P & Company with Office at Mumbai, having 5+ years of professional experience, excellence in the field of TAX and audit services. If you have any query then author can be reached out – [email protected]
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