Cash is No Longer King: How the Income-Tax Act is making you Digital
Cash transactions are under the scanner of the tax authorities. And rightly so, in a world where your tea vendor has a QR code and your paani puri guy says “Google Pay chalega?”, cash is starting to look shady—even when it’s not. Cash is fast becoming enemy No. 1 in the eyes of the Income-tax Department.
The Income-tax Act, 1961, has been methodically turning the screws on cash transactions. Earlier the focus was on cash payment and cash deposits in the bank account but now it has been evenly shifted to withdrawals as well. The recipients are also getting penalized for acceptance of the amount in cash irrespective of its nature as to whether its income or not. It’s since long we haven’t discussed the law related to cash transactions in our weekly column The Tax Talk. Let’s take back a quick tour of how the Act is slapping down cash harder than a contestant on KBC hitting the buzzer.
1. Section 194N: Withdraw Big, Pay TDS:
If you think walking into a bank and withdrawing your crore-full of cash makes you look cool, think again. Section 194N says, “Fine. Take out more than ₹1 crore in a year, but we’ll take 2% TDS off the top.” Actually, this law has evolved since inception and now if you haven’t filed ITRs for the past three years, the limit drops to ₹ 20 lakh and TDS rate rises to 5% beyond ₹ 1 crore. So if you’re not on the Taxman’s good side, even your withdrawals are treated with suspicion.
2. Section 269SU: Swipe It Like It’s Hot:
If your business turnover crosses ₹50 crore, you must provide digital payment facilities to the customers—think UPI, BHIM, credit cards, etc. That’s Section 269SU. Ignore this and you’re looking at a penalty of ₹ 5,000 per day under Section 271DB. Yes, per day—because apparently, the tax department doesn’t believe in subtlety anymore. The law is designed to ensure that the acceptance of payment by way of digital mode is not a free choice of business houses & they have to ensure that the customer can freely opt for the digital payment option if they wish to.
3. Business? Better Keep That Wallet Shut [Section 40A(3)]:
If your business is paying vendors in cash beyond ₹10,000 per day, you’re in trouble. That expense will be disallowed, meaning your taxable income goes up. If the payment is against transportation charges, payment up to Rs. 35,000/- is allowed without any disallowance.
4. Buying Assets in Cash? Bye Bye, Depreciation [Section 43(1)]:
Want to claim depreciation on that machine, equipment & other assets for business purposes? Great. Just don’t pay more than ₹10,000 for it in cash—because if you do, it won’t be added to the cost of the asset, and you lose depreciation on it. Moral of the story: “Cash purchase, no tax benefit. Card swipe, all right.”
5. Presumptive Taxation Gets Presumptively Digital (Section 44AD):
Small businesses under Section 44AD get a nice presumptive tax scheme—8% of turnover is taxed. But here’s a treat: if your receipts are through digital mode, the tax rate drops to 6%. So, Uncle Sharma who accepts only cash gets taxed more than his tech-savvy nephew with a QR code on his pushcart.
6. The ₹20,000 Loan Trap (Sections 269SS & 269T):
Thinking of accepting or repaying a loan in cash? Not above ₹20,000. Whether it’s from your rich aunt or a friend paying you back—cash is out. Only account payee cheques, drafts, or digital modes are allowed. And yes, advance for sale of property is also covered. It means almost no cash deals in the properties transaction is allowed now.
7. Donating in Cash? Generous, but No Deduction (Section 80G & 13A):
If you donate more than ₹2,000 in cash—even to charity—no deduction under Section 80G. Same goes for political donations. Section 13A makes sure political parties also go digital while accepting donation. So yes, your neta must accept your netbanking.
8. Capital Expenditure? Cash Not Welcome (Section 35AD):
Want to set up a cold chain or a 5-star hotel under 35AD benefits? Splendid. But if you pay for capital expenditure in cash beyond ₹10,000, forget it. It’s like ordering a pizza and asking for a refund after eating half—won’t work.
9. Section 269ST: The Triple Threat:
This is a big one! The taxman is drawing a very clear line in the sand here.
You can’t accept more than ₹ 2,00,000 in cash:
(a) In a day in aggregate from a person or
(b) In respect of single transactions
(c) In respect of transactions relating to one event or occasion from a person.
Break this, and you’re looking at a 100% penalty under Section 271DA. That’s right. Receive ₹3 lakh in cash? You may owe the government ₹3 lakh as a fine. Ouch.
10. Stamp Duty Value vs Agreement Value [Sections 43CA, 50C, 56(2)(x)]:
When selling property, if the agreement value is less than stamp duty value, the difference between the two is taxable. These sections have been amended to allow a margin (called a “safe harbour”) of 10%. However, there is one exception to this rule. It has been very categorically provided in all above sections that the stamp duty valuation as on the date of agreement to sale can be adopted if the amount of consideration or a part thereof has been received by way of an A/c payee cheque, draft or ECS on or before the date of agreement. In short, if the stamp duty valuation as on the date of agreement is not exceeding the amount of sale deed value, nothing would be taxable under above sections subject to the payment in digital mode at the time of agreement to sale earlier.
Conclusion: Welcome to Digital Bharat:
The Income-tax Act has now officially moved from “cash is suspicious” to “cash is evil.” While we might still reach for those notes for our daily coffee, when it comes to anything significant, the message is loud and clear: embrace the digital, and keep the taxman happy (or at least, less unhappy). After all, in the world of finance, a little less cash can save you a whole lot of headaches! Whether you’re a businessperson or a salaried professional or a chaiwala and want to stay off the income tax radar, ditch the cash and go digital.
[Views expressed are the personal view of the author. Readers are advised to seek professional advice before taking any decisions. Readers may forward their feedback & queries at nareshjakhotia@gmail.com. Other articles & response to queries are available at www.theTAXtalk.com]
