February 21, 2023
India has been moving towards a cashless economy in recent years with the introduction of various digital payment platforms and the government’s push towards digital transactions. The Indian government has taken several steps to encourage the transition to a cashless economy, such as launching the Unified Payment Interface (UPI), promoting the use of RuPay cards, and offering incentives for digital transactions. The government has also launched various digital literacy campaigns to educate the public about the benefits of digital transactions. However, the shift towards a cashless economy also comes with its challenges, such as the lack of infrastructure and connectivity in rural areas, lack of digital literacy among certain sections of the population, and concerns over security and privacy.
CBDT has been bringing in various laws and amendments to Income Tax Act to impose various restrictions on cash to support the cashless economy motive and reduce tax evasion. In this article, we have detailed multiple cash limitations and restrictions.
Do’s & Don’ts w.r.t Cash Transactions
| Particulars | Limits/ Restrictions | Remarks |
|
Cash Receipts |
Any person cannot receive more than Rs 2 lakhs in cash for a single transaction or in aggregate from a person in a day [Section 269ST] |
Violating this provision attracts a penalty equal to the amount of cash received. In addition, the defaulting person may also face prosecution and imprisonment for a term up to two years. |
|
Cash Payments |
An individual cannot make a cash payment of more than Rs. 10,000 for a single transaction [Section 40A(3)] |
Contravention of the provision leads to disallowance of such expenses against which payment of more than Rs.10,000/- was paid in cash. |
|
Acceptance of loans or deposits |
An individual or a firm cannot take or accept any loan or deposit in cash exceeding Rs. 20,000 from any person. [Section 269SS] |
Anyone violating these provisions will be liable to pay a penalty equal to the loan amount or deposit taken in cash or without a written instrument. |
|
Repayment of loan or deposits |
The following types of transactions are prohibited: 1. Making any repayment of loan or deposit, or any specified purpose, in cash to a person if the aggregate of such repayments to that person during the financial year exceeds Rs. 20,000. 2. Making any payment to a person, whether in cash or otherwise, for the purpose of any repayment of loan or deposit, or for any specified purpose, if the aggregate of such payments to that person during the financial year exceeds Rs. 20,000. |
Violating this provision attracts a penalty equal to the amount of payment made. In addition, the defaulting person may also face prosecution and imprisonment for a term up to two years. |
|
Deposit to Bank Account |
Total cash deposits of Rs. 10 Lakhs and above during a financial year, in one or more accounts (current account and time deposit of a person excluded), would be reported mandatorily by the bank or cooperative bank. |
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Withdrawals from Bank Accounts |
If any person withdraws more than Rs. 1 crore (Rs. 3 Crores in case of a co-operative Society) in cash from a bank account or more than Rs. 20 lakhs from a cooperative bank or post office savings account in a financial year. The bank or the post office will deduct a TDS of 2%. [Section 194N] |
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Fixed Assets |
No depreciation shall be allowable if any person makes a payment of more than Rs. 10,000/- in cash for acquisition or incurs any expenditure for the purchase of any asset [section 43] |
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Donations to Political Parties |
Political parties cannot accept cash donations of more than Rs. 2,000/- from a single donor. |
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Medical insurance premium |
Section 80D benefit would not be available if the medical insurance premium is paid in cash. |
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Donations |
No deduction is allowed u/s. 80G in respect of donation of any sum exceeding Rs. 2,000/- if paid in cash |
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Tax Audit |
If your business is making a turnover of more than Rs. 1 crore and the cash receipts and/ or payments are more than 5% of total cash receipts and / or payments – you will be liable to tax audit. However, if the cash receipts and payments do not exceed 5%, the tax audit limit is extended to Rs. 10 Crores. |
Conclusion:
Income tax department has become highly vigilant against cash transactions these days. In the last few years, the Department and various investment platforms like banks, mutual fund houses, broker platforms, etc., have tightened the cash transaction rules for the public in general. Now, investment and lending institutions only allow cash transactions to a specific limit. In India, many transactions go unaccounted for, with people often transacting in cash to avoid the government’s radar. To curtail the black money menace, the government has put several limits that individuals and businesses must adhere to when transacting in cash. Everyone must be aware of these limits to avoid consequences and impediments.