The Income Tax Department can impose a penalty of up to 100% on cash transactions that exceed the prescribed limit
Income Tax on Cash Transactions: Know the Limits
The Income Tax Act, 1961, sets specific limits on cash transactions and restricts deductions, allowances, and expenses paid in cash.
To encourage digital payments, the government has implemented rules to curb excessive cash transactions. Many individuals unknowingly violate these regulations, which can result in penalties. It’s important to be aware that non-compliance may lead to fines, and the Income Tax Department closely monitors high-value cash transactions.
" Excessive cash transactions not only violate tax laws but also attract significant financial penalties. Compliance with Income Tax Services in Delhi is crucial to avoid unnecessary liabilities. "
Penalty for Exceeding Cash Transaction Limits?
Under the Income Tax Act, 1961, limits have been set on cash transactions, and deductions, allowances, and expenses paid in cash are restricted. The Income Tax Department has cautioned that if cash transactions exceed the prescribed limit, a penalty equal to the amount paid may be imposed upon detection.
Understanding tax rules on cash transactions is essential.
Many people unknowingly exceed the cash transaction limit, only to face hefty penalties later. To avoid such mistakes, it is crucial to be aware of the rules.
In a brochure issued on January 2, 2025, the Income Tax Department emphasized, “Say ‘No’ to cash transactions.” The brochure provides detailed information on cash transaction limits, the nature of transactions, and the entities involved.
Let’s explore the key rules outlined by the Income Tax Department regarding cash transactions.
1. Section 269SS: Accepting/taking loans, deposits and specified amounts in cash
No person can accept any loan or deposit or other specified sum in cash if the amount (or aggregate of amounts) is Rs 20,000 or more. Specified sum means taking an advance or any amount in respect of the transfer of immovable property.
This rule does not apply to:
- A Government banking company, post office savings bank or co-operative bank (but not all co-operative societies, whether engaged in banking or related activities or not).
- A corporation established by a Central, State or Provincial Act.
- A Government company falling within section 2(45) of the Companies Act, 2013;
- A notified institution, association or body (or class of institutions, associations or bodies).
The above order does not apply even if both the person giving cash and the person taking it are earning agricultural income and neither of them has income taxable under the Income Tax Act, 1961.
Penalty for violation
In case of violation of this rule, under section 271D of the Income Tax Act, the same amount as the amount taken in cash will have to be paid as a penalty.
" To avoid penalties and ensure seamless tax compliance, businesses should consult a Tax Consultant Company in Delhi and adhere to cash transaction limits. "
2. Section 269 ST: Receiving money in cash
Under section 269ST of the Income Tax Act, a person is prohibited from receiving an amount of Rs 2 lakh or more in cash in a day. This rule applies to everyone, whether the person is a taxpayer or not.
Under this rule, an amount of more than Rs 2 lakh cannot be taken in cash in the following situations:
- Total amount taken from one person in a day: An amount of more than Rs 2 lakh cannot be taken in cash from a single person in a day.
- For a single event or occasion: An amount of more than Rs 2 lakh cannot be taken in cash from a single person for any single event or occasion like marriage, birthday etc.
3. Section 269T: Repayment of loan or deposit
No person can make payment of Rs 20,000 or more in cash. Government, bank, post office savings bank are exempted from this rule.
Penalty for violation
Under section 271E, the amount paid in cash will have to be paid as a penalty.
Section 269SU: Accepting payment through electronic mode
Those whose annual turnover is more than Rs 50 crore will have to provide the facility of accepting payment through prescribed electronic methods.
Penalty for violation
Under section 271DB, a fine of Rs 5,000 will be imposed for every day for violating the rule. Actually this brochure is a compilation of the provisions related to cash transactions. Through this, the government wants to make people aware of the penalty imposed on cash transactions. The government is trying to make people avoid paying in cash even for small transactions so that digital transactions can be promoted.
Conclusion
Exceeding the prescribed cash transaction limits can result in severe penalties of up to 100% of the amount. To avoid legal complications, businesses and individuals must switch to digital transactions, maintain proper records, and comply with tax regulations.
For expert assistance, consult the Best Tax Consultant Company in Delhi for Income Tax Services in Delhi, TDS Return Services in Delhi, and TDS Return Filing Services in Delhi. A professional tax consultant can help you navigate complex tax laws and ensure compliance, safeguarding your finances from unnecessary penalties.
