Cash Transactions: Limits and Legal Implications

The limits on cash transactions and their legal consequences can differ from one country to another. The government of India has introduced stringent regulations on cash transactions that aim to tackle tax evasion and encourage digital payments.

These regulations are mainly outlined in several sections of the Income Tax Act of 1961, specifically sections 269SS, 269ST, and 40A(3).

Section 269SS

As per section 269SS of the Income Tax Act, 1962 (Chapter XXB – Requirements as to mode of acceptance, payment or repayment in certain cases to counteract evasion of tax) which talks about the “Mode of taking or accepting certain loans, deposits and specified sum” explains –

“No person shall take or accept from any other person (herein referred to as the depositor), any loan or deposit or any specified sum, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, if,—

(a) the amount of such loan or deposit or specified sum or the aggregate amount of such loan, deposit and specified sum; or

(b) on the date of taking or accepting such loan or deposit or specified sum, any loan or deposit or specified sum taken or accepted earlier by such person from the depositor is remaining unpaid

(whether repayment has fallen due or not), the amount or the aggregate amount remaining unpaid; or

(c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b) is twenty thousand rupees or more.”

Section 269ST

As per section 269ST of the Income Tax Act, 1962 (Chapter XXB – Requirements as to mode of acceptance, payment or repayment in certain cases to counteract evasion of tax) which talks about the “Mode of undertaking transactions” explains –

“No person shall receive an amount of two lakh rupees 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, otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account.”

Section 269T

As per section 269T of the Income Tax Act, 1962 (Chapter XXB – Requirements as to mode of acceptance, payment or repayment in certain cases to counteract evasion of tax) which talks about the “Mode of repayment of certain loans or deposits” explains –

“No branch of a banking company or a co-operative bank and no other company or co-operative society and no firm or other person shall repay any loan or deposit made with it or any specified advance received by it] 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 or paid the specified advance, or by use of electronic clearing system through a bank account

if—

(a) the amount of the loan or deposit 3[or specified advance] together with the interest, if any, payable thereon, or

(b) the aggregate amount of the loans or deposits held by such person with the branch of the banking company or co-operative bank or, as the case may be, the other company or co-operative society or the firm, or other person either in his own name or jointly with any other person on the date of such repayment together with the interest, if any, payable on such loans or deposits, or

(c) the aggregate amount of the specified advances received by such person either in his own name or jointly with any other person on the date of such repayment together with the interest, if any, payable on such specified advances,

is twenty thousand rupees or more:

Provided that where the repayment is by a branch of a banking company or cooperative bank, such repayment may also be made by crediting the amount of such loan or deposit to the savings bank account or the current account (if any) with such branch of the person to whom such loan or deposit has to be repaid.”

Section 40A(3)

As per section 40A(3) of the Income Tax Act, 1962 talks about the “Expenses or payments not deductible in certain circumstances” explains –

“Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, or use of electronic clearing system through a bank account, exceeds ten thousand rupees, no deduction shall be allowed in respect of such expenditure.”

For payments to transporters, this limit is raised to rupees thirty-five thousand.

Legal Implications

As per section 271D of the Income Tax Act, 1961, Penalty for failure to comply with the provisions of section 269SS –

• If a person takes or accepts any loan or deposit or specified sum in contravention of the provisions of section 269SS, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit or specified sum so taken or accepted.

• Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner.

As per section 271DA of the Income Tax Act, 1961, Penalty for failure to comply with provisions of section 269ST –

• If a person receives any sum in contravention of the provisions of section 269ST, he shall be liable to pay, by way of penalty, a sum equal to the amount of such receipt:

1. Provided that no penalty shall be imposable if such person proves that there were good and sufficient reasons for the contravention.

• Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner.

Best Practices for Compliance

• Keep Accurate Records: Ensure the proper documentation of cash transactions, including receipts and invoices.

• Steer Clear of Large Cash Transactions: Opt for banking or digital payment methods for high-value deals.

• Familiarize Yourself with Local Regulations: Keep up to date on the cash transaction limits in your country to prevent unintentional violations.

• Utilize Accounting Software: Take advantage of applications such as QuickBooks, Tally, or Zoho Books to efficiently monitor cash inflows and outflows.

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