By Bhagat Singh Tomar, Member, All India Federation of Tax Practitioners
In India, cash transactions have long been scrutinized to curb tax evasion and promote transparency. The Indian government has introduced various legal provisions under the Income Tax Act, 1961, and other relevant laws to limit the use of cash in business and personal transactions. Understanding these regulations is crucial for taxpayers to avoid hefty penalties. Here’s a detailed breakdown of the major provisions:
Section 269ST – Restriction on Cash Receipts
Under the Income Tax Act, Section 269ST prohibits individuals and businesses from receiving INR 2,00,000 or more in cash:
In aggregate from a person in a single day.
For a single transaction.
For transactions relating to one event or occasion.
Penalty: A penalty equal to the amount of cash received will be levied if this limit is violated.
Section 40A(3) – Payments in Cash for Business Expenditure
For business expenditures, Section 40A(3) mandates that any payment exceeding INR 10,000 made to a single person in a day must be done through banking channels (cheque, draft, or electronic means). This section is aimed at curbing the use of black money in business operations.
Penalty: Such payments will be disallowed as business expenses, resulting in an increased taxable income.
Section 43 – Cash Payments for Acquisition of Assets
Under Section 43, if a taxpayer makes payments exceeding INR 10,000 in cash to acquire an asset, the expenditure will not be included in the cost of acquisition for the purpose of depreciation.
Impact: The taxpayer will lose the depreciation benefit on such transactions.
Section 269SS – Restriction on Cash Loans and Deposits
Section 269SS prohibits accepting loans, deposits, or any other specified sum in cash exceeding INR 20,000 from a single person. This aims to regulate unaccounted loans in the system.
Penalty: An amount equal to the loan or deposit taken will be levied as a penalty.
Section 269T – Repayment of Loans and Deposits
In addition to restricting loan acceptance, Section 269T restricts repayment of loans or deposits in cash exceeding INR 20,000. The repayment must be made via banking channels.
Penalty: An equivalent amount of penalty will be imposed for any violation.
Prohibition under Benami Transactions (Prohibition) Act
The Benami Transactions (Prohibition) Act, 1988 also restricts cash transactions intended to hide the identity of the real owner. Any cash deals involving benami properties are strictly prohibited and can result in the confiscation of the property.
Penalty: Offenders face penalties and imprisonment for up to seven years.
Cash Transactions for Donations
The Income Tax Act also restricts donations in cash. Donations exceeding INR 2,000 must be made via cheque, draft, or electronic means to claim tax benefits under Section 80G.
Limits on Cash Transactions in Property
The government has imposed restrictions on cash transactions in real estate. As per recent amendments, property transactions above INR 30 lakh must be reported to the Income Tax Department, and cash payments are highly discouraged to avoid scrutiny.
Cash Expenditure in Political Contributions
Under Section 13A, cash donations to political parties exceeding INR 2,000 are not permitted. Contributions should be made through banking channels for transparency.
Conclusion
These regulations are part of the government’s ongoing efforts to move towards a cashless economy, promoting accountability and transparency in financial transactions. Non-compliance with these cash transaction limits can attract severe penalties, making it essential for individuals and businesses to remain vigilant and adopt digital modes of payment.
Bhagat Singh Tomar is a distinguished member of the All India Federation of Tax Practitioners and a certified GST Practitioner. With extensive expertise in tax laws, he offers professional advice on a range of financial and tax-related matters.
