Income Tax Department's E-Flyer Urges Public to Avoid Cash Transactions, Clarifies Transaction Limits

Last updated: 10 October 2023

In a move aimed at promoting transparency and discouraging the use of cash transactions in financial dealings, the Income Tax Department has recently released an informative E-Flyer. This E-Flyer meticulously outlines the cash transaction limits and underscores the substantial consequences associated with specific types of cash transactions.

Cash transactions have long been a subject of scrutiny by tax authorities due to their potential to facilitate tax evasion and illicit financial activities. The newly issued E-Flyer by the Income Tax Department serves as a comprehensive guide to educate taxpayers and business professionals on the regulations and implications surrounding cash transactions.

Income Tax Department s E-Flyer Urges Public to Avoid Cash Transactions, Clarifies Transaction Limits

Certain types of Cash Transaction have serious consequences

1. Taking or Accepting Certain Loans, Deposits

No person is permitted to accept Rs. 20,000 or more in cash

a) for any loan or deposit or

b) 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.

The exceptions to this provision include the following:-

Sums of this nature accepted from –

(a) Government;

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

(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: Penalty of an amount equal to the amount taken in cash will be levied.

2. Repayment of Certain Loans or Deposits

Any branch of a banking company or a cooperative society, firm or other person is not allowed to repay any loan or deposit in cash if

(a) The amount of the loan or deposit or specified advance* together with the interest, if any, is Rs.20,000 or more, or

(b) 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.

(c) w.e.f 2019-20.TDS@2% to be deducted on cash withdrawals of Rs. 1 Crore in a year from bank account for business purpose.

to any person who has made

a) the loan or deposit or

b) paid the specified advance*.

This provision does not apply to-

Repayment of any loan or deposit or specified sum* taken or accepted from –

(a) Government;

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

(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. (Refer Sec.269T)

*Specified advance means any sum of money in the nature of advance, by whatever name called in relation to transfer of an immovable property, whether or not transfer takes place.

Consequences of violation : Penalty for an amount equal to the amount of such loan or deposit repaid will be levied.

3. Other Cash Transaction

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

This provision does not apply to-

(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 2695S;

(iii) such other persons or class of persons or receipts, which the Central Government may, by notification in the Official Gazette, specify. ( Refer Section 2695T)

(d) w.e.f 2019-20, Digital payments (Mode of electronic payments) are permissible in addition to account payee cheque, account payee bank draft or electronic clearing system through a bank account. Persons having business income and turnover/ receipt exceeding 50 crores in a financial year are mandatorily required to accept payment through prescribed electronic mode or other electronic mode only. In case of failure to do so, it would attract a penalty of Rs. 5000/- for every day during which such failure continues.

Consequences of violation of this provision: penalty u/s. 271 DA is levied for a sum equal to the amount of such receipt.

4. Disallowance of expenses incurred in Cash

In case a person incurs any expenditure for his business or profession, in respect of which payment or aggregate of payments made in cash in a day exceeds Rs. 10,000, 100% of such payment will be disallowed while computing his taxable income from business/ profession. (Refer to Section 40A(3)). However, some exceptions are provided (See Rule 60D of the Income Tax Rules).

5. Deemed Income of Subsequent year in which payment is made

In case an allowance has been made in respect of any liability incurred by a person for any expenditure, and then during any subsequent year the person makes payment in respect thereof in cash, the payment is chargeable to income-tax as income of the subsequent year if the payment or aggregate of payments made to a person in a day exceeds Rs.10,000.

In case payment is being made for plying, hiring or leasing goods carriages, then the limit is Rs.35000, instead of Rs. l 0000/-.

6. Disallowance in respect of Fixed Assests i.e. Capital Expenditure

In case a person incurs any expenditure for acquisition of any asset in respect which a payment or aggregate of payments made to a person in cash in a day exceeds Rs.10,000/-, such expenditure is not included for the purposes of determination of actual cost of such asset. This means that no depreciation benefit will be available on such capital expenditure incurred in cash.