Tax Dept Notifies E-Flyer on Cash Transactions with Limits

The Income Tax Department has recently circulated an E-Flyer containing detailed information about cash transaction limits and highlighting the severe consequences concerning cash transactions of specific types. Taxpayers and business professionals are strongly advised to completely avoid engaging in cash transactions, as non-compliance can lead to significant penalties.

Here are the implications of some of the specific types of cash transactions:

Taking or Accepting Certain Loans, and Deposits:

It is not allowed for any individual or entity to accept ₹20,000 or more in cash for the following purposes:

Loans or deposits
Amounts related to the transfer of immovable property (even if the transfer does not occur)

If any cash received for these purposes remains outstanding and needs to be repaid, the aggregate limit of ₹20,000 is applicable to the pending amount and any subsequent cash receipts.

Cases Where This Provision Does Not Apply-

Acceptance of such sums from:

Government
Banking companies, post office savings banks, or cooperative banks
Corporations established by central, state, or provincial Acts
Government companies as defined in clause (45) of section 2 of the Companies Act, 2013
Institutions, associations, or body or class of institutions, associations, or bodies specified by the Central Government through a notification in the Official Gazette.
Individuals having agriculture income, provided both the recipient and the person are not liable to income tax.

Violations Consequences: Violation of this provision incurs a penalty equal to the amount taken in cash.

Particular Loans or Deposits Repayment:

Branches of banking companies, cooperative societies, firms, or individuals are not allowed to repay loans or deposits in cash if:

The loan or deposit amount or stated advance, together with interest (if applicable), is ₹20,000 or more.
The aggregate amount of loans or deposits or stated advance, held by such person (individually or jointly with others) at the time of repayment, including interest (if applicable), is ₹20,000 or more.
TDS (Tax Deducted at Source) at a rate of 2% is applicable on cash withdrawals of ₹1 crore or more in a year from a bank account for business purposes, effective from the 2019-20 financial year.

To Any Person Who Has Made-

The loan or deposit or
Paid the specified advance

Cases where this provision does not apply-

The repayment of loans or deposits received or taken from:

Government
Banking companies, post office savings banks, or cooperative banks
Corporations set up by central, state, or provincial Acts
Government companies as mentioned in clause (45) of section 2 of the Companies Act, 2013
Some other institutions, associations, or body or class of institutions, associations, or bodies specified by the Central Government through a notification in the Official Gazette. (Refer to Sec. 269T)

Specified advance refers to any amount of money provided in the form of an advance, regardless of the name used, in connection with the transfer of immovable property, regardless of whether the actual transfer occurs or not.

Violation Consequences: Violation of this provision results in a penalty equal to the amount of the loan or deposit repaid.

Additional Cash Transactions

It is not allowed for any individual to receive ₹2,00,000 or more in cash under the following circumstances:

The aggregate amount received from a person in a single day.
In respect of a single transaction.
With reference to the transactions regarding one event or occasion from a person.

Cases where this provision does not apply-

(i) Any receipts by:

Government
Banking companies, post office savings banks, or cooperative banks

(ii) Transactions specified in Section 2695S.

(iii) Other persons or categories of receipts specified by the Central Government through notification in the Official Gazette (refer to Section 2695T).

With effect from the 2019-20 financial year, digital payments and other prescribed electronic modes are accepted in addition to account payee cheques, account payee bank drafts, or electronic clearing systems through a bank account. Individuals with business income and a turnover/receipt exceeding ₹50 crores in a financial year are required to accept payments through the stipulated electronic mode or other electronic modes only. Failure to comply with this requirement will result in a penalty of ₹5,000 per day during which such failure continues.

Violation Consequences: Violating this provision incurs a penalty under Section 271DA equal to the amount of the cash receipt.

Disallowance of Cash Expenses

If an individual spends money for their business or profession, and the total amount paid in cash in a single day exceeds ₹10,000, then 100% payment will be excluded when determining their taxable income from the business or profession. (Refer to Section 40A(3)). However, certain exceptions are there (see Rule 60D of the Income Tax Rules).

Deemed Income of the Following Year When Payment is Completed

If a person has been granted regarding a liability they incurred for certain expenses, and in a later year they make a cash payment to settle that liability, the payment will be subject to income tax as income for the subsequent year if the payment or the total of payments made to a person in a single day exceeds Rs. 10,000.

Instead of the previous limit of ₹10,000, payments made for the operation, hiring, or leasing of goods carriages have a higher threshold of ₹35,000.

Disallowance for Fixed Assets (Capital Expenditure)

If a person incurs any expenditure for the acquisition of an asset, and the payment or aggregate of payments made to a person in cash in a day exceeds ₹10,000, such expenditure is not included in determining the actual cost of the asset. Consequently, no depreciation benefit will be available on such capital expenditure incurred in cash.

Cash Donations

Cash donations exceeding ₹2,000 made to a registered trust or political party are not eligible for deduction under Section 80G.

Health Insurance Premiums

Payments made in cash for health insurance premiums are not eligible for deduction under Section 80D of the Income Tax Act.