Be cautious before undertaking a Cash Transaction
Every year in Union Budget, Central Government come out with some rules and prohibited those transactions which generate Black Money.To curb all these types of transactions, Government has imposed certain Limits on transaction in cash. Some of transaction along with their penal provision are as follows:
- Accepting Cash in aggregate INR 2,00,000 or More
In Finance act, 2017 Government has introduced a section 269SS in income tax act, 1961 which states no person shall accept cash amounting INR 2 Lakhs or more.
- In aggregate from a single person in a day,
For example, In a single day Mr. A received payment from five different persons namely E, F, G, H and I and all these payments are within the specified individual limit, then even though in aggregate total receipts exceeded the limit of INR 2 Lakhs, the section would not be attracted. Suppose if E alone gave aggregate total receipts INR 3 Lakhs in cash for different transaction in a day then the above provision will be applicable.
- In respect of a single transaction
For example, If Mr. B receives a sum of INR 3 Lakhs in respect of a single transaction, in three instalments of INR 1 Lakh each, on different dates, then apparently, this would be covered under the purview of this condition.
- In respect of transactions relating to one event or occasion from a person
For example, in the event of marriage of Mr. A, he can receive gifts in cash of an amount less than INR2 Lakhs from each of his friend and relative. In case the same exceeds 2 lakhs, the provisions of this section will get attracted.
However above provision does not applicable on transactions for section 269SS which is discussed later.
Penalty for contravention
If a person undertakes such transaction which contravene the provision then he shall be liable to pay a penalty of a sum equal to amount of such receipt.
- Business Expenditure in Cash
A person should also be careful while incurring any cash expenditure for business, because as per Section 40A(3) of Income tax act, 1961, no expenditure would be allowed in respect of which payment or aggregate of payments made in cash exceeding INR 10,000 to a person in a single day. Also, kindly note no depreciation would be allowed on an asset which has been purchased in cash exceeding INR 10,000 from a person in a single day.
However certain transaction will be allowed if cash payment has been done in excess of INR 10,000 such as payment to cultivator, grower for purchase of Agricultural or forest produce, produce of Animal Husbandry or dairy or poultry farming, fish or fish products. Also, payment exceeding INR 10,000 in cash required urgently to be made on a day on which the banks were closed either on account of holiday or strike is allowed as business expenditure. So, to avoid the harshness of provision always make payment through account payee cheque, account payee bank draft or using ECS such as NEFT/RTGS/ IMPS, Credit Cards or Debit cards or any banking channels.
- Accepting Loan in Cash exceeding INR 20,000 or more
As a business practice, a businessman provides unsecured loan or advance to other person in cash which may be an unaccounted money provided to a fictitious person. To stop this practice government brings a section 269SS of Income tax act, 1961 which prohibits accepting of any Loan, Deposit or Advance in relation to transfer of immovable property (hereinafter referred as Specified Sum) aggregate with any previous loan or deposit or specified sum remain unpaid if any, in cash exceeding INR 20,000 or more from a person.
However, Loan or Deposit or Specified sum taken or accepted by or from Govt., any Banking Company, post office saving bank or Co – operative bank is not prohibited.
Penalty for Contravention
If a person fails to comply with above provision, then it would lead to penalty equal to amount of loan or deposit or specified sum accepted.
- Repayment of Loan in Cash
Another provision, section 269T of Income tax act, 1961 prohibit person repaying any Loan or deposit or specified sum together with interest in cash of any amount except when the loan or deposit or specified sum together with interest if any payable thereon does not exceed twenty thousand rupees.
Penalty for Contravention
If a person fails to comply with above provision then it would lead to penalty equal to amount of Loan or deposit or specified sum so repaid.
- Donation in Cash
In order to provide cash less economy and transparency, section 80G provide that no deduction shall be allowed under the section 80G i.e. donation to certain relief funds or charitable institutions of any sum exceeding INR 2,000/- unless such sum is paid by any mode other than cash.
- Deposit of cash in bank and payment of credit card bills
A bank will report your account details to Income tax department if your aggregate cash deposit in all your saving bank account exceeds INR 10 Lakhs in a year or aggregate cash deposit/ withdrawal in all current account exceeds INR 50 Lakhs in a year.
Also, if you pay your credit card bills aggregating to INR 1 lakh or more in cash and 10 lakhs or more in case of any other mode in a financial year then also the credit card agency will report your details to income tax department.
To avoid the income tax notices, litigation and penalties one should always prefer their monetary transaction should be done through banking channels.
In the era of digitalization, one has many banking channels available to do a transaction such as account payee cheque, Account Payee Bank Draft, ECS etc. Also, apart from income tax much more benefits are available for undertaking a transaction through banking channels.
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