Cash transactions are a significant aspect of financial dealings in India. However, the Income Tax Act of 1961 imposes various restrictions and rules to curb the use of cash in large transactions. This blog aims to provide detailed insights into the key sections of the Income Tax Act that regulate cash transactions, ensuring that individual taxpayers and business owners understand and comply with these regulations.
Section 40A(3)
Restriction on Cash Payments:
- The maximum cash payment to a single person per day should not exceed ₹10,000.
- For cash payments made for plying, hiring, or leasing goods carriage, the limit is ₹35,000.
Permitted Payment Methods:
- Account payee cheque
- Account payee demand draft
- Electronic system
Exceptions:
- Payments to RBI, SBI, any banking company, LIC, primary agricultural society, primary credit society/cooperative bank
- Payments to the government in legal tender
- Payments to a cultivator, grower, or producer of agricultural goods or livestock
- Payments up to ₹50,000 to an employee or their legal heir in connection with retirement, retrenchment, resignation, death, or gratuity
- Salary after deducting TDS when the employee is temporarily posted for 15 days or more at a place without a bank account
- Payments to authorized dealers and foreign money exchangers registered with RBI
Section 269ST
Restriction on Receipts:
- No person shall receive an amount of ₹2 lakhs or more in aggregate from a person in a day in respect of a single transaction or for transactions relating to one event or occasion in cash.
Penalty:
- Penalty under Section 271DA is equivalent to the amount of such receipt.
Section 269SS
Restriction on Acceptance of Cash Loan:
- A person cannot accept a cash loan or deposit of ₹20,000 or more from another person.
Exceptions:
- Acceptance from the government, banking company, corporation, or establishment by a Central, State, or Provincial Act
- A person earning only agricultural income can accept a cash loan or deposit above ₹20,000 from another person earning only agricultural income
Section 269T
Restriction on Repayment of Loan/Deposit:
- Repayment of a loan or deposit in cash above ₹20,000 is not allowed.
Section 80D
Restriction on Health Insurance Premium:
- If a health insurance premium is paid in cash, it will not be allowed as a deduction.
- Payments for preventive health care check-ups can be made in cash.
Section 80G
Restriction on Donations:
- Donations exceeding ₹2,000 in cash will not be allowed as a deduction.
Section 80GGB
Restriction on Cash Donations by Companies:
- Cash donations by an Indian company or enterprise to a political party or electoral trust will not be allowed as a deduction.
Section 80GGC
Restriction on Cash Donations by Individuals:
- Cash donations by an individual to a political party will not be allowed as a deduction.
Section 43(1)
Restriction on Purchase of Assets:
- Where a cash payment exceeding ₹10,000 is made to purchase assets, depreciation will be disallowed on that amount, including additional depreciation.
Summary Table for Quick Reference
| Section | Restriction | Permitted Cash Limit | Exceptions | Penalty |
|---|---|---|---|---|
| 40A(3) | Cash payment limit | ₹10,000 (₹35,000 for goods carriage) | Listed exceptions | None |
| 269ST | Cash receipt limit | ₹2,00,000 | None | Penalty equal to the amount of receipt |
| 269SS | Cash loan/deposit acceptance limit | ₹20,000 | Government, banking entities, agricultural income | None |
| 269T | Cash loan/deposit repayment limit | ₹20,000 | None | None |
| 80D | Cash payment for health insurance | Not allowed | Cash payment for the purchase of assets | None |
| 80G | Cash donation limit | ₹2,000 | None | None |
| 80GGB | Cash donations by companies to political parties/electoral trusts | Not allowed | None | None |
| 80GGC | Cash donations by individuals to political parties | Not allowed | None | None |
| 43(1) | Cash payment for purchase of assets | ₹10,000 | None | Disallowance of depreciation |
Conclusion
Understanding the restrictions on cash transactions under the Income Tax Act of 1961 is crucial for individual taxpayers and business owners to avoid penalties and ensure compliance. By adhering to these guidelines, taxpayers can manage their finances more effectively and maintain transparency in their transactions.