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Income Tax No More Cash Transactions


Income tax - 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 transaction limit under the Income Tax Act along with penalty for transacting in cash over and above a certain threshold.

Cash Transaction Limit – Section 269ST

The Finance Act 2017, took various measures to restrain black money and as an outcome of which, a new section 269ST was inserted in the Income Tax Act. Section 269ST imposed restriction on a cash transaction and limited it to Rs.2 Lakhs per day.

Section 269ST states that no person shall receive an amount of Rs 2 Lakh or more:

  • In aggregate from a person in a day; or
  • In respect of a single transaction; or
  • In respect of transactions relating to one event or occasion from a person.
  • However, the Central Board of Direct Taxes (CBDT) has clarified that this cash withdrawal limit does not apply for withdrawals from Banks and Post offices.

    Thus the provisions of section 269ST will not apply to:

  • Cash received through an Account Payee Cheque or an Account Payee Bank draft or use of electronic clearing system (ECS) through a bank account.
  • Any receipt by the Government, any banking company, post office savings bank or co-operative bank.
  • Transactions of nature referred to in section 269SS.
  • Such other persons or class of persons or receipts, which the Central government may, by notification Official

    Gazette, specify.

  • Withdrawal from Post Office<

    Post offices under the Department of India Post facilitate drawings from Post Office savings account along with ATM facility.

    The limit of cash that can be withdrawn in a single day from a post office or ATM is Rs.25,000 and is limited to Rs.10,000 per transaction. It permits five free transactions per month including financial and non-financial transactions (balance enquiry, statement request). Beyond the free transactions, Rs.20 with GST is charged.

    Withdrawal from other bank ATMs is admissible wherein it is upto 3 free transactions in metro cities while it is five free transactions in non-metro cities. A fee of Rs.20 with GST is charged for transactions above the free transactions.

    Withdrawal from Banks

    The amount deposited can be withdrawn from both savings account and current account using a chequebook/withdrawal slip or using automated teller machine through a debit card.

    Cash withdrawal limit varies from bank to bank and also depends on the type of card being used. It varies from 10,000 to 50,000 per day based on the bank. However, the transaction details notified by the State Bank of India is furnished below.

  • Withdrawals using chequebook has been restricted to 60 withdrawals per half year by most of the banks.
  • The amount of money that can be debited from current account is limited to Rs.1,00,000 per week whereas an overall of Rs.24,000 can be drawn per week from the savings account.
  • ATM withdrawals allow Rs.10,000 to be drawn per day and permits unlimited free transactions for salary account

    whereas 3 transactions from other ATMs with a fee of Rs.20 plus GST per month.

  • 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.10,000 is made in cash, then the expenditure will be disallowed under the Income Tax Act.

    Hence, its important for all taxpayers to make any payment for expense over Rs.10,000 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 cost of the asset. Hence, its 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 than Rs.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 Lakhs 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 lakhs 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.

    Section 269T of Income Tax Act

    Section 269T provides that any branch of a banking company or a co-operative society, firm or other person cannot repay any loan or deposit otherwise than by an account payee cheque or account payee bank draft drawn in the name of the person, who has made the loan or deposit, if:

  • The amount of the loan or deposit together with interest is INR 20,000 or more; or
  • The aggregate amount of loans or deposits held by such person, either in his name or jointly with other person on the date of such repayment together with interest is INR 20,000 or more.
  • Provisions of section 269T are not applicable, when loan is repaid or deposit taken or accepted from below mentioned person:

  • 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 5. Institution, association or body or class of institutions, associations or bodies notified by Central Government in its official gazette.
  • Penalty under Section 269T

    As per section 271E, in case of failure to comply with provisions of section 269T, penalty amount equal to the amount of loan or deposit repaid is payable.

    While entering into cash transactions one should keep in mind the followings points:

    1. Don’t give more than Rs 2,000 in cash donations to a political party or a registered trust. As per section 80G, no deduction shall be allowed in respect of donation of any sum exceeding Rs.2000 unless such sum is paid by any mode other than cash. Further, one has to keep in mind provisions of section 269ST also as mentioned here-in-below.

    2. Don’t accept cash of Rs.2 lakh or more in aggregate from a single person in a day or for one or more transactions relating to one event or occasion (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. However, the Central Board of Direct Taxes (CBDT) has clarified that this cash withdrawal limit does not apply for withdrawals from Banks and Post offices. Thus, it will not apply to:

  • Cash received through an Account Payee Cheque or an Account Payee Bank draft or use of electronic clearing system (ECS) through a bank account.
  • Any receipt by the Government, any banking company, post office savings bank or co-operative bank.
  • Transactions of nature referred to in section 269SS.
  • Such other persons or class of persons or receipts, which the Central government may, by notification Official Gazette, specify.

  • 3. Don’t take/accept loans or deposits or a sum of Rs.20,000 or more in cash (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 269SS 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;
  • 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

  • 4. Don’t repay any loan or deposit in cash if the amount of the loan or deposit together with interest is Rs.20,000 or more; or the aggregate amount of loans or deposits held by such person, either in his name or jointly with other person on the date of such repayment together with interest is Rs.20,000 or more (Section 269T). As per section 271E, in case of failure to comply with provisions of section 269T, penalty amount equal to the amount of loan or deposit repaid is payable. However, the provisions of section 269T are not applicable, when loan is repaid or deposit taken or accepted from below mentioned person:

  • 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.

  • 5. Don’t pay more than Rs.10,000 for acquisition of an asset by cash otherwise the expenditure would be ignored for the purposes of determination of actual cost of the asset (Section 43).

    6. Don’t receive or repay Rs.20,000 or more in cash for transfer of an immovable property. According to section 269SS, while transacting immovable property, 100% penalty will be levied if seller has accepted an amount of Rs.20,000 or more in cash from the buyer.

    7. Don’t pay more than Rs.10,000 in cash relating to expenditure of business /profession otherwise such expenses are disallowed (Section 40A(3)). However, there are certain exceptions to this as provided in Rule 6DD.

    It is, therefore, important for all taxpayers making donations, incurring expenditures, accepting or repaying loans, acquiring assets to make aforesaid payments through banking channels.


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