CASH TRANSACTION – LIMIT & PENALTY

        In Indian economy, cash transactions has always played a major role and been a reason for black money. The Government has now initiated various measures to curb cash transactions and boost digital payments. In this article, we look at cash transactions limit under the Income tax Act along with penalty for transacting in cash over and above a certain threshold.

Cash Transaction limit under Income Tax

The following are the main income tax sections that pertain to cash transaction   limit:

• Section 40A(3) and Section 43-Pertains to cash payment
• Section 269SS and Section 269ST – pertains to cash Receipts
• Section 269T – pertains to Repayment of Certain Loans / Deposits

SECTION 40A (3) of Income Tax

Section 40A (3) of the Income Tax Act pertains to cash transaction limit for expenditure made in cash. Under Section 40A (3), if payment for any expenditure of over Rs.10000 is made in cash, then the expenditure will be disallowed under the Income Tax Act.

Hence, it’s important for all taxpayers to make any payment for expense over Rs.10000 through banking channels like debit card, account transfer, cheque or demand draft.

SECTION 43 of Income Tax

Under section 43 of Income Tax Act, if a payment of more than Rs. 10,000 is made by a taxpayer for acquisition of an asset by cash, the expenditure would be ignored for the purposes of determination of actual cast of the asset. Hence, it’s important for all taxpayers acquiring assets to make all payments to the seller through banking channels.

SECTION 269SS of Income Tax

Section 269SS prohibits a taxpayer from taking/accepting loans or deposits or a sum of more than Rs.20, 000/- in cash. All loans and deposits of more thanRs.20, 000/- must always be taken through a banking channel.

Section 269SS of the Income Tax Act is however not applicable when accepting/taking loan or deposit from a person or entity mentioned below:

• Government;
• Any banking company, post office saving bank or co-operative bank;
• Any corporation established by a Central, State or Provincial Act
• Any Government company as defined in clause (45) of section 2 of the Companies Act,2013
• Institution association or body or class of institutions, associations or bodies notified by Central Government in its official gazette.

Finally, if the person from whom the loan or deposit is taken and the person by whom the loan or deposit is accepted, are both having agricultural income and neither have any income taxable under income tax Act, then the provisions of Section 269SS will not apply.

Penalty under Section 269SS:-

Failure to comply with provisions of section 269SS could lead to a penalty equal to the amount of loan or deposit or specified sum accepted.

Section 269ST of Income Tax Act

Section 269ST of Income Tax Act provides that no person can receive an amount of INR 2 lakh or more in cash:

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

Provisions of Section 269ST are not applicable, when cash of more than Rs 2 lakh is received from following person:

• Government;
• Any banking company, post office saving bank or co-operative bank;
• Institution, association or body or class of institutions, associations or bodies notified by Central Government in its official gazette.

Penalty under Section 269ST:-

As per section 271DA,in case of failure to comply with provisions of section 269ST, penalty amount equal to the amount of receipt is payable.

 

Note: - The possibility of other interpretation and contrary view cannot be denied. It will be better if finance ministry comes out with a detailed press release outlining the intended scope of the new ordinance. Let us hope that the issue gets settled with the probable coming press release

Disclaimer: The information contained in the above article are solely for informational purpose after exercising due care. However, it does not constitute professional advice or a formal recommendation. The author do not owns any responsibility for any loss or damage caused to any person, directly or indirectly, for any action taken on the basis of the above article.