Income Tax E-Flyer on Cash Transaction Limits: Promoting Cashless Transactions

Income Tax E-Flyer on Cash Transaction Limits: Avoid Cash Transactions

The Income Tax Department has issued an E-Flyer about cash transaction limits and the potential consequences of certain types of cash transactions.

The Tax Department strongly advises taxpayers and business professionals to steer clear of cash transactions to avoid the serious repercussions that may follow.

Here are the details of cash transaction limits and their consequences:

1. Receiving Loans or Deposits in Cash: No individual is allowed to accept Rs. 20,000 or more in cash:

a) For loans or deposits, or

b) In connection with the transfer of any immovable property (even if the transfer doesn't occur).

If any cash received for such purposes remains outstanding and needs to be repaid, the total limit of Rs. 20,000 will apply to the outstanding amount, as well as any subsequent cash receipts.

There are exceptions to this rule, including sums received from:

(a) Government

(b) Banks, post office savings banks, or co-operative banks

(c) Corporations established by central, state, or provincial Acts

(d) Government companies defined under section 2(45) of the Companies Act, 2013

(e) Other institutions, associations, or bodies specified by the Central Government in the Official Gazette

(f) Persons with agricultural income when both the sender and receiver have agricultural income and are not liable for income tax.

Consequence of violation: A penalty equal to the cash amount received will be imposed.

2. Repayment of Certain Loans or Deposits: No branch of a banking company, cooperative society, firm, or any other entity is allowed to repay a loan or deposit in cash under the following circumstances:

(a) The loan or deposit amount, along with any interest, is Rs. 20,000 or more, or

(b) The combined total of loans, deposits, or advances held by that individual, whether solely or jointly with others, on the repayment date, along with any interest, is Rs. 20,000 or more.

(c) Starting from the financial year 2019-20, a 2% Tax Deducted at Source (TDS) is required on cash withdrawals of Rs. 1 Cr. or more yearly from a bank account for business purposes.

This rule does not apply to the repayment of loans, deposits, or specified sums received from:

(a) The government

(b) Post office savings bank, any banking company or cooperative bank

(c) Corporations established under central, state, or provincial Acts

(d) Government companies as defined in section 2(45) of the Companies Act, 2013

(e) Other institutions, associations, bodies, or classes of these entities specified by the Central Government through official notification.

Specified advance refers to any money given in advance for the transfer of immovable property, whether or not the actual transfer takes place.

Consequences of violation: A penalty equal to the amount of the repaid loan or deposit will be imposed.

3. Other Cash Transactions: No individual is allowed to receive Rs. 2,00,000 or more in cash if s/he falls under some of these circumstances:

(a) In total from one person in a single day

(b) In a single transaction

(c) In transactions related to one specific event or occasion from a single person

Exceptions to this rule include:

(i) Any cash receipt by:

(a) The government

(b) Post office savings bank, any banking company, or cooperative bank

(ii) Transactions mentioned in section 2695S of the Income Tax Act

(iii) Other individuals or classes of individuals, or receipts specified by the Central Government through official notification.

Additionally, starting from the financial year 2019-20, digital payments, alongside account payee cheques, account payee bank drafts, or electronic clearing systems through a bank account, are permissible. Individuals with business income and annual turnover/receipts exceeding 50 crores are mandated to accept payments through prescribed electronic or other electronic modes. If you fail to do so then you might have to face a penalty of Rs. 5,000/day for each day of non-compliance.

Consequences of violating this provision: A penalty under section 271DA will be imposed, equal to the amount of the cash received.

4. Deemed Income of the Subsequent year in which payment is made: When an allowance is given for a liability incurred by an individual or business, and during a subsequent year, that individual or business makes a cash payment related to that liability, the payment is subject to income tax as income in the subsequent year if the payment or the total of payments exceeds Rs. 10,000 in a single day made to one person.

If the payment is related to the operation, hiring, or leasing of goods carriages, the limit is Rs. 35,000, rather than Rs. 10,000.

5. Disallowance of Cash Expenses: When an individual or business spends money for their business or profession, and the payment or the total payments made in cash in a single day exceed Rs. 10,000, 100% of that payment will not be considered as an allowable expense when calculating their taxable income from the business or profession. This is defined under Section 40A(3) of the Income Tax Act. However, some exceptions are outlined in Rule 6OD of the Income Tax Rules.

6. When an individual or business spends money in cash to acquire an asset, and the payment or total payments made in cash in a single day exceed Rs. 10,000, this expenditure is not considered when determining the actual cost of the asset. As a result, no depreciation benefits will be available on capital expenditure incurred in cash.

7. Cash donations exceeding Rs. 2,000 paid to a registered political party or trust are not eligible for deductions u/s 80G.

8. Additionally, any cash payments for health insurance premiums are not eligible for deductions under section 80D of the Income Tax Act.

Also Read: Understanding the Causes of Delay in Receiving Your Income Tax Refund and What Steps to Take

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