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).
Cash Transaction Limits
Cash Deposits and Withdrawals
Savings or Joint Accounts: If cash deposits is Rs 10 lakh or more in a financial year, it needs to be reported. This limit also applies to fixed deposits.
Current Accounts: When deposits or withdrawals is Rs 50 lakh or more in a financial year, it needs to be reported.
Restrictions on Cash Transactions
Receiving Cash Over Rs 2 Lakh
You cannot receive over Rs 2 lakh in cash
- from one person in a single day.
- for a single transaction.
- for transactions related to one event or occasion from one person.
Exceptions: This provision does not apply to government receipts, banking companies, or post offices.
Business Expenses
If you are running business than, expenses above 10,000 in single day in cash are not allowed.
Credit Card Bills
Paying credit card bills in cash over Rs 1 lakh is not allowed.
Cash Donations
Cash donations over Rs 2,000 are not allowed.
Property Transaction
If property value exceed Rs.30 Lakh, must be reported to Tax Department.
Buyer need to deduct TDS 1% if property value exceed Rs.50 Lakh.
TDS on cash withdrawals
Withdrawals above INR 1 crore: 2% TDS is applicable.
Non-ITR Filers: For those who don’t le income tax returns-
- 2% TDS applies to withdrawals over INR 20 lakh and
- 5% over INR 1 crore.
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.
Legal Implications of Cash Transactions
Penalty for Violating Section 269SS (Section 271D)
If a person accepts a loan, deposit, or specified sum of ₹20,000 or more in cash, a penalty equal to the amount accepted is levied.
Penalty for Violating Section 269ST (Section 271DA)
If a person receives ₹2 lakh or more in cash, a penalty equal to the amount received is levied.
No penalty if the person proves good and sufficient reasons for the violation.
Penalty imposed by : Joint Commissioner.
Want To Know More About TDS on Cash Withdrawal Click Here
FAQs
Single Transaction Limit (Section 269ST): Cash payments exceeding ₹2,00,000 in a single day, to a single person, or for a single event/occasion are prohibited. Penalty: 100% of the amount received in contravention.
Business Expenses (Section 40A(3)): Cash payments exceeding ₹10,000 per day per person (₹35,000 for payments to transporters) are disallowed as business expenses.
Donations: Cash donations exceeding ₹2,000 are not eligible for tax deductions under Section 80G.
Loans/Deposits: Cash transactions exceeding ₹20,000 for loans or deposits are prohibited under Section 269SS/269T.
Indeed, tax deductions can be applied to cash salary payments exceeding Rs. 10,000 in specific extraordinary situations. Additionally, you are permitted to make cash payments of up to Rs. 50,000 for employee termination benefits to qualify.
Section 269ST prohibits a person (recipient) from receiving an amount of Rs. 2 lakhs or more except through an account payee cheque, account payee bank draft, or by utilizing an electronic clearing system via a bank account or other designated electronic methods.
Although there isn’t a defined limit on how much cash you can keep at home, it’s important to be able to explain any significant sums to prevent scrutiny from tax authorities.
No, Section 269ST forbids accepting cash amounts of ₹2 lakhs or more in total from a single individual in a single day or for a specific transaction.