In India, the Income Tax Department has established stringent regulations to monitor high-value cash transactions. These measures aim to curb black money and promote digital payments. Non-compliance can lead to significant penalties. This article delves into the key provisions governing cash transactions, providing detailed explanations and examples to help individuals and businesses stay compliant.
1. Receiving Cash Above ₹2 Lakh: Section 269ST
Section 269ST prohibits any person from receiving ₹2 lakh or more in cash:
- From a single person in a day,
- In respect of a single transaction, or
- In relation to one event or occasion.
Penalty: Violation attracts a penalty under Section 271DA, equal to the amount received in cash.
Examples:
- Single Day: If Mr. A receives ₹1.5 lakh in the morning and ₹60,000 in the evening from Mr. B, totaling ₹2.1 lakh in a single day, it violates Section 269ST.
- Single Transaction: Mr. C sells a car worth ₹3 lakh and accepts ₹1.5 lakh in cash on two different days. Despite splitting the payment, it pertains to a single transaction, thus violating the provision.
- Single Occasion: A wedding planner receives ₹1 lakh for decoration and ₹1.5 lakh for catering services for the same wedding, both in cash. Although for different services, since it’s for a single occasion, it breaches Section 269ST.
2. Cash Loans and Deposits: Sections 269SS and 269T
- Section 269SS: Prohibits acceptance of loans or deposits of ₹20,000 or more in cash.
- Section 269T: Prohibits repayment of loans or deposits of ₹20,000 or more in cash.
Penalty: Violation results in a penalty equal to the amount of the loan or deposit accepted or repaid in cash.
Example: Accepting or repaying a cash loan of ₹25,000 can lead to a penalty of ₹25,000.
3. Business Expenditures in Cash: Section 40A(3)
Businesses are disallowed from claiming deductions for expenses exceeding ₹10,000 paid in cash to a single person in a day.
Exception: For payments to transporters, the limit is ₹35,000.
Consequence: Such expenses are disallowed as deductions, increasing the taxable income.
Example: Paying ₹15,000 in cash for office supplies means the amount cannot be claimed as a business expense, leading to higher tax liability.
4. Cash Donations: Section 80G
Donations exceeding ₹2,000 made in cash are not eligible for tax deductions under Section 80G.
Recommendation: Make donations through cheque, bank transfer, or digital modes to avail tax benefits.
5. High-Value Cash Deposits and Withdrawals
- Savings Accounts: Cash deposits exceeding ₹10 lakh in a financial year are reported to the Income Tax Department.
- Current Accounts: Cash deposits or withdrawals exceeding ₹50 lakh in a financial year are reported.
Note: While these transactions are not illegal, they may trigger scrutiny. Taxpayers should maintain proper documentation to explain the source of funds.
6. Cash Payments for Credit Card Bills and Investments
- Credit Card Bills: Cash payments exceeding ₹1 lakh for credit card bills in a financial year are reported to the tax authorities.
- Investments: Cash investments of ₹10 lakh or more in shares, mutual funds, or debentures are reported.
Implication: Such transactions may lead to inquiries if they do not align with the declared income.
7. Real Estate Transactions
Property registrar’s report transactions where the sale or purchase price of immovable property is ₹30 lakh or more.
Advice: Avoid large cash components in property deals to prevent tax complications.
8. Tax Deducted at Source (TDS) on Cash Withdrawals: Section 194N
To discourage cash transactions, TDS is applicable on cash withdrawals:
- 2% TDS on cash withdrawals exceeding ₹1 crore in a financial year.
- For non-filers of income tax returns for the past three years:
- 2% TDS on withdrawals exceeding ₹20 lakh.
- 5% TDS on withdrawals exceeding ₹1 crore.
Example: If Mr. X withdraws ₹1.5 crore in a financial year and has filed returns, TDS @2% is applicable on ₹50 lakh (i.e., ₹1.5 crore – ₹1 crore), amounting to ₹1 lakh.
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