Restrictions on Cash Transactions: The Government of India took several measures to digitise the Indian economy by moving towards a cashless economy. The steps also helped curb black money, limit cash transactions after a certain amount and number, and identify tax invaders.
Some of these provisions of the Income Tax Act 1961, along with their threshold or transaction limit, penalty and exemption of the rules, are discussed below in this article.
- Expenditures Made Through Cash Payments
- Restriction on Health Insurance Premium
- Restrictions on Donations Made in Cash
- Restriction on Repayment of Cash Loans, Deposits or Any Specified Sum or Advance
- Restriction On Taking or Accepting Cash Loans, Deposits or Any Specified Sum
- Restriction on Cash Transactions
Expenditures Made Through Cash Payments
Transaction Limit
Expenditures that exceed a cash payment of Rs 10,000 to a person in a single day. However, the limit for the payments made for plying, hiring or leasing of goods carriage to a person in a single day is Rs. 35,000 in cash.
Associated Section and Provision
Section 40A (3) of the Income Tax Rules has been amended to discourage the method of cash payments for expenditures. Expenditures made where the payment made to a person in a day exceeds Rs. 10,000 or Rs. 35,000 (for payment of plying, hiring or leasing of goods carriage) or else, than, by an account payee cheque or bank draft, or use of electronic clearing system through a bank account, such expenses are not allowable as a deduction under Section 40A (3) in the computation of income from business and profession, which are otherwise deductible.
Exemptions
Rule 6DD of the Income Tax Rules mentions certain exceptions where rules stated in Section 40A (3) doesn’t apply. This results in an increase in taxable income from business or profession.
Penalty for Violating the Provision
No deduction is allowable in the computation of income from business or profession regarding such cash payments. This results in increased taxable income in the calculation of profits and gains from business or profession.
Restriction on Health Insurance Premium
Transaction Limit
There is no transaction limit.
Associated Section and Provision
Section 80D of the Income Tax Rules allows the deduction, up to a maximum limit of Rs 1,00,000 on medical premium and preventive health check-ups to individuals or HUF. However, the deduction under Section 80 D, in respect of health insurance premium paid, is available only if the same has not been paid in cash.
Penalty for Violating the Provision
There is no deduction allowed from the gross total income as per section 80D.
Restrictions on Donations Made in Cash
Transaction Limit
As per section 80G, deduction under Chapter VIA of Income Tax Act 1961 is not allowed for donation made of any sum exceeding Rs. 2,000, if the donation is made in cash and not any other mode.
Associated Section
80G of Income Tax Act 1961 provides the deduction on donation to certain funds, charitable institutions etc. The donations can qualify for either 50% or 100% tax deduction without any upper limit. In contrast, some donations qualify for either 50% or 100% tax deduction subject to a maximum limit of 10%, which is adjusted on Gross Total Income.
Penalty for Violating the Provision
If the donation paid is more than Rs. 2,000, no deduction is allowed under Chapter VIA of the Income Tax Act from Gross Total Income.
Restriction on Repayment of Cash Loans, Deposits or Any Specified Sum or Advance
Transaction Limit
The amount of deposit or loan is Rs. 20,000.
Associated Section
The Section 269T of the Income Tax Act 1961 prohibits any person from repaying the loan or deposit or specified sum in cash other than by a cheque or bank draft (both are account payee) or by use of an electronic clearing system through a bank account, if –
- The entire amount of the loan or deposit, along with the interest amount, is Rs. 20,000 or more.
- The combined amount of the loans or deposits, along with the interest amount held by such person in his own name or jointly with any person, is Rs. 20,000 or more.
Penalty for Violating the Provision
As per section 271E, if a loan or deposit is repaid in contravention of the provisions of section 269T, then a penalty equivalent to the amount of such loan or deposit repaid may be levied by the Joint commissioner, which is payable by the payer and not the receiver. However, under section 273, the above penalty is not leviable if the assessee proves a reasonable cause for the failure in compliance with the provisions.
Exemptions
The section 269T is not applicable if the repayment of the loan or deposit is to the following parties –
- Government.
- Any Government company.
- Any savings bank, co-operative bank, banking company, or post office.
- Any corporation set up by a Central, State or Provincial Act of the Government.
- Other institutions, associations or bodies or classes of institutions, associations or bodies that the Central Government may notify on this behalf in the Official Gazette (for reasons to be recorded in writing).
Restriction On Taking or Accepting Cash Loans, Deposits or Any Specified Sum
Transaction Limit
The amount of deposit or loan is Rs. 20,000.
Associated Section
As per section 269SS, a person shall not accept loan or deposit or any other specified sum from another person otherwise than by a cheque or bank draft (both account payee) or use of an electronic clearing system through a bank account, when –
- The amount of any loan or deposit or the combined amount of similar loan or deposit; or
- The date when the loan or deposit is taken or accepted, any loan or deposit is taken or accepted earlier by such person from the depositor is remaining unpaid and the amount or the combined amount remaining unpaid; or
- The amount or the combined amount referred to in statement (a) together with the amount or the combined amount referred to in statement (b) is Rs. 20,000 or more.
Note:Â Specified sum or advance means any sum of money in the nature of advance, by whatever name called, concerning the transfer of immovable property, whether or not the transfer takes place.
Penalty for Violating the Provision
As per section 271D, if a loan or deposit is repaid in contravention of section 269SS, a penalty equivalent to the amount of such loan or deposit repaid may be levied by the Joint commissioner, which is payable by the payer and not the receiver. However, under section 273, the above penalty is not leviable if the assessee proves a reasonable cause for the failure in compliance with the provisions.
Exemptions
The section 269SS is not applicable if the repayment of the loan or deposit is to the following parties –
- Government.
- Any Government company.
- Any savings bank, co-operative bank, banking company, or post office.
- Any corporation set up by a Central, State or Provincial Act of the Government.
- Other institutions, associations or bodies or classes of institutions, associations or bodies that the Central Government may notify on this behalf in the Official Gazette (for reasons to be recorded in writing).
Restriction on Cash Transactions
Transaction Limit
The limit of such cash transactions is Rs. 2,00,000.
Associated Section
As per section 269ST of the Income Tax Act 1961, no person shall receive a receipt of Rs. 2,00,00 or more (in cash) by a person –
- In aggregate, from a person in a single day (for different bills as well).
- With respect to a single transaction (even on separate days).
- Regarding transactions relating to one event or occasion from a person (For example, an event management company receives cash of more than Rs. 2,00,000 for a private party arrangement even if separate bills are made and payments are received on different days).
- Otherwise, then by a bank cheque or bank draft (both account payee) or use of an electronic clearing system through a bank account.
Penalty for Violating the Provision
Section 271DA provides that if any person receives any amount contravention of the provision of section 269ST, shall be liable to pay the penalty of a sum equal to the amount of such receipt. However, the penalty is not leviable by the Joint Commissioner if the person proves that there is a good and sufficient reason for such infringement.
Exemptions
The section 269ST shall not apply to any receipt by –
- Government or any banking company, post office savings bank or co-operative bank;
- Transactions referred to in section 269SS – i.e., acceptance of a loan, deposits, etc.,
- Other persons or class of people or receipts etc., that the Central Government may notify.
- The lender from whom the loan or deposit is taken or accepted or the person by whom the loan or deposit is taken or accepted, if both have Agricultural Income and neither of them has any income that can be charged for taxation.
- Any corporation that is established by a Central, State or Provincial Act.
It is also clarified that for loan repayment, one installment will be considered as a single transaction as per clause (b) of section 269ST, and all the installments paid for repayment shall not be aggregated for applying the provisions of section 269ST.