Income Tax: No More Cash Transactions!

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Income Tax: No More Cash Transactions! 

By CA Somani Devendra Kumar

Udaipur

 

Please be careful. Accepting cash beyond a certain threshold may lead to penalty or adverse consequences. Hence, its important for all taxpayers to make any payment over the prescribed limit through banking channels like debit card, account transfer, cheque or demand draft. In this article, I have given a bird’s eye view of the relevant provisions of the Income Tax Act, 1961. While entering into cash transactions one should keep in mind the followings points:

  1. Don’t give more than Rs 2,000 in cash donations to a political party or a registered trust. As per section 80G, no deduction shall be allowed in respect of donation of any sum exceeding Rs.2000 unless such sum is paid by any mode other than cash. Further, one has to keep in mind provisions of section 269ST also as mentioned here-in-below.
  1. Don’t accept cash of Rs.2 lakh or more in aggregate from a single person in a day or for one or more transactions relating to one event or occasion (Section 269ST). As per section 271DA, in case of failure to comply with provisions of section 269ST, penalty amount equal to the amount of receipt is payable. However, the Central Board of Direct Taxes (CBDT) has clarified that this cash withdrawal limit does not apply for withdrawals from Banks and Post offices. Thus, it will not apply to:
  • Cash received through an Account Payee Cheque or an Account Payee Bank draft or use of electronic clearing system (ECS) through a bank account.
  • Any receipt by the Government, any banking company, post office savings bank or co-operative bank.
  • Transactions of nature referred to in section 269SS.
  • Such other persons or class of persons or receipts, which the Central government may, by notification Official Gazette, specify.
  1. Don’t take/accept loans or deposits or a sum of Rs.20,000 or more in cash (Section 269SS). Failure to comply with provisions of section 269SS could lead to a penalty equal to the amount of loan or deposit or specified sum accepted. Section 269SS is, however, not applicable when accepting/taking loan or deposit from a person or entity mentioned below:
  • Government;
  • Any banking company, post office saving bank or co-operative bank;
  • Any corporation established by a Central, State or Provincial Act;
  • Any Government company as defined in clause (45) of section 2 of the Companies Act, 2013;
  • Institution, association or body or class of institutions, associations or bodies notified by Central Government in its official gazette;
  • If the person from whom the loan or deposit is taken and the person by whom the loan or deposit is accepted, are both having agricultural income and neither have any income taxable under Income Tax Act
  1. Don’t repay any loan or deposit in cash if the amount of the loan or deposit together with interest is Rs.20,000 or more; or the aggregate amount of loans or deposits held by such person, either in his name or jointly with other person on the date of such repayment together with interest is Rs.20,000 or more (Section 269T). As per section 271E, in case of failure to comply with provisions of section 269T, penalty amount equal to the amount of loan or deposit repaid is payable. However, the provisions of section 269T are not applicable, when loan is repaid or deposit taken or accepted from below mentioned person:
  • Government;
  • Any banking company, post office saving bank or co-operative bank;
  • Any corporation established by a Central, State or Provincial Act:
  • Any Government company as defined in clause (45) of section 2 of the Companies Act, 2013:
  • Institution, association or body or class of institutions, associations or bodies notified by Central Government in its official gazette.
  1. Don’t pay more than Rs.10,000 for acquisition of an asset by cash otherwise the expenditure would be ignored for the purposes of determination of actual cost of the asset (Section 43).
  2. Don’t receive or repay Rs.20,000 or more in cash for transfer of an immovable property. According to section 269SS, while transacting immovable property, 100% penalty will be levied if seller has accepted an amount of Rs.20,000 or more in cash from the buyer.
  3. Don’t pay more than Rs.10,000 in cash relating to expenditure of business /profession otherwise such expenses are disallowed (Section 40A(3)). However, there are certain exceptions to this as provided in Rule 6DD.

It is, therefore, important for all taxpayers making donations, incurring expenditures, accepting or repaying loans, acquiring assets to make aforesaid payments through banking channels.

 

CA Somani Devendra Kumar

Udaipur

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