After the implementation of demonetization, the Government and the Income Tax Department favoured the use of bank transfers in place of cash transactions. The implementation of BHIM-UPI, promotion of net-banking and implementation of e-RUPI are steps ahead in this regard. Cash transactions are not promoted by the revenue for lack of traceability and chance of counterfeiting.
Several limits are also imposed on transactions in cash by the Income Tax Act and Income Tax Rules. Several Central Board of Direct Taxes (CBDT) Circulars also give relevant information in this regard.
Section 269SS, Income Tax Act
Taking of Loans and Accepting Deposits
No person is permitted to accept Rs. 20,000\- or more in cash for any loan, deposit or in relation to transfer of any immovable property.
Sums accepted from Government, banking company, co-operative savings bank or post-office savings bank, corporations and Government companies established by State, Central or provincial acts (exempted categories) are not limited as above.
Amount above Rs. 20,000/- accepted by a person having agricultural income from another person having agriculture income but not liable to tax is also not covered by the limit.
The penalty for contravention of this limit is an amount equal to the amount taken in cash.
Repayment of loans
No Branch of banking company or co-operative society is allowed to repay any loan or deposit or specified advance in cash if the amount of said transaction including interest exceeds Rs. 20,000/-.
TDS is also to be deducted at 2% from the Financial Year 2019-2020 onwards on cash withdrawals of Rs. 1 Crore in a year for business purposes.
The same is not applicable for repayment or receipt of amounts exceeding the limit to or from the exempted categories mentioned above.
The penalty for contravention is the same as that for taking of loans and accepting deposits.
Other Cash Transactions
For other cash transactions: No person is allowed to receive an amount of Rs. 2,00,000/- or more in aggregate from a person in a day or in respect of a single transaction. However, this does not apply to any receipt by the Government, banking companies, post-office savings banks or co-operative banks. Transactions in the nature specified in Section 269SS are also exempted from application of this provision.
Penalty under Section 271DA of the Income Tax Act is levied equivalent to the sum of the amount of such receipt.
Cash Expenses – Disallowance
Expenses for business or profession in excess of Rs. 10,000/- in a day, if made in cash are disallowable at 100%. Section 40A(3).
However, Rule 6DD of the Income Tax Rules exempts some of the situations in which disallowance is not applicable. Payments made to Reserve Bank of India (RBI), SBI and its subsidiary banks, any co-operative bank or land mortgage bank, primary agricultural credit society or LIC are not disallowable.
Payments made to the Government in legal tender as required by rules framed are not disallowable. Additionally, payments made by letter of credit arrangements, mail or telegraphic transfers and book adjustments or bill of exchange through banks are also eligible to be allowed.
Deemed Income of Subsequent Year in which payment is made
When a cash transaction of Rs. 10,000/- or more for deemed income of subsequent year for which payment thereof is being made in cash in a day, such payment is chargeable as income tax of the subsequent year. However, for payments made for hiring, plying or leasing goods carriages, the limit is Rs. 35,000/- instead of Rs. 10,000/-.
Capital Expenditures
When cash payments exceeding Rs. 10,000/- are made for acquisition of asset, it is not included for determination of actual cost of asset. Depreciation on such assets are thereby disallowable for such capital expenditures incurred in cash.
Donations
Donations made in excess of Rs. 2000 in cash to registered trusts or political parties are disallowable under Section 80G of the Income Tax Act.
Health Insurance Premiums
Cash payments for premiums of health insurances are not allowable under Section 80D of the Income Tax Act, 1961.
Click here to read Recent Judicial/Tribunal Decisions on Cash Transaction.
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
