Complications caused by cash transactions in income tax

Government wants that people use banking system and in the same direction some new provisions added in the Finance Act, 2017 to prevent black money.

We will discuss all the provisions related to cash transactions, exceptions of the same and consequences of them as well.

• Taking or Accepting Certain Loans & Deposits
• Repayment of Certain Loans & Deposits
• Transactions in Cash
• Expenditure Incurred in Cash
• Capital Expenditure in Cash 
• Donation in Cash
• Premium on Health Insurance
• TDS in case of Cash withdrawal

1. Taking or Accepting Certain Loans & Deposits

Section 269SS of the Act provides that no person shall take or accept Rs. 20,000 or more in cash 

• For any loan or deposit, or
• Any amount in relation to transfer of any immovable property (even if transfer does not take place)

If any cash received from a person for any such purpose is still outstanding to be repaid, then the overall limit of Rs. 20,000/- will apply to the outstanding amount plus any subsequent receipt in cash. 

Exceptions to this provision include the following

Sum of this nature accepted or taken from 

(a) Government ;

(b) any banking company, post office savings bank or co-operative bank ;

(c) any corporation established by a central, state or provincial Act ;

(d) any Government company as defined in clause (45) of section 2 of the Companies Act,2013 ;

(e) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, by notification in the Official Gazette, specify.

(f) from a person having agriculture income, and the recipient is also having agriculture income and neither of them is chargeable to income tax.

Consequences of violation

As per section 271D, a penalty of an amount equal to the amount taken or accepted in cash will be levied.  

2. Repayment of Certain Loans & Deposits

Section 269T: Any branch of a banking company or a co-operative bank, co-operative society, firm, other company or other person is not allowed to repay any loan or deposit in cash if 

a) the amount of the loan or deposit, or 

b) any amount in relation to transfer of immovable property (even if the transfer does not take place) together with the interest, if any, is Rs.20,000/- or more, or

c) The aggregate amount of loans or deposits or specified advance held by such person, either in his own name or jointly with other person on the date of such repayment together with the interest, if any, is Rs.20,000/- or more.

to any person who has made 

• the loan or deposit
• paid the amount in relation to transfer of immovable property

Exceptions to this provision include the following

Repayment of any loan or deposit taken or accepted from 

(a) Government ;

(b) any banking company, post office savings bank or co-operative bank ;

(c) any corporation established by a central, state or provincial Act ;

(d) any Government company as defined in clause (45) of section 2 of the Companies Act,2013 ;

(e) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, by notification in the Official Gazette, specify.

Consequences of violation

As per section 271E, a penalty of an amount equal to the amount of loan or deposit repaid in cash will be levied. 

3. Transactions in Cash

Section 269ST: No person is allowed to receive in cash an amount of Rs. 2,00,000 or more

(a) in aggregate from a person in a day; or
(b) in respect of a single transaction; or
(c) in respect of transactions relating to one event or occasion from a person,

Exceptions to this provision include the following

(i) any receipt by –

a) Government
b) any banking company, post office savings bank or co-operative bank;

(ii) transactions of the nature referred to in section 269SS;

(iii) such other persons or class of persons or receipts, which the Central Government may, by notification in the Official Gazette, specify.

Consequences of violation of Section 269ST

As per section 271DA, a penalty of an amount equal to the amount of such receipt will be levied. 

Example: X sells goods on credit to Y on 14.08.2021(vide invoice no. 2021-22/104), amount of Rs. 10,42,000. Payment is made by Y as follows: 

1. Payment of Rs. 1,45,000 in cash on 16.08.2021.
2. Payment of Rs. 8,00,000 by RTGS on 20.08.2021
3. Payment of Rs. 97,000 in cash on 22.08.2021

What are the tax consequences of aforesaid payments?

Answer: Payment received in cash Rs. 2,42,000. it is covered by section 269ST. 

The assessing officer can impose 100% of Rs. 2,42,000 as penalty under section 271DA 

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