Income Tax Regulations: The income tax authority attentively observes substantial cash transactions, prompting taxpayers to proceed with caution. Under Section 269ST of the Income Tax Act, receiving cash payments of ₹2 lakh or more in a single day for a singular transaction or related transactions on one occasion is prohibited. Exceeding this threshold could lead to penalties or legal repercussions.
It’s crucial for taxpayers to recognize that the Income Tax Department keeps track of significant cash transactions surpassing specific limits, which can lead to inquiries from tax officials.
According to Section 269ST of the Income Tax Act, no individual is permitted to accept a sum of ₹2 lakh or more in cash from another person in a single day, whether for one transaction or multiple associated transactions resulting from a singular event or occasion.
This regulation affects both individuals and entities, placing the onus of compliance on the recipient of the cash, not the payer.
Potential Penalties for Cash Transactions over ₹2 lakh
Engaging in cash transactions exceeding ₹2 lakh, or accepting that amount in a single day, could result in penalties. Tax expert Balwant Jain from Mumbai emphasizes that if a cash transaction of ₹5 lakh occurs, the recipient may face a penalty equivalent to that amount if the Income Tax Department identifies the violation during an audit.
Those who receive cash exceeding ₹2 lakh in violation of this regulation can incur a penalty equal to the amount of cash received. Notably, the payer bears no liability under these provisions.
Breakdown of Section 269ST
Section 269ST stipulates that no entity may accept over ₹2 lakh (the cash receipt ceiling) from an individual in any of the following circumstances: the total received from that person in a single day, in connection with a specific transaction, or related to transactions originating from a singular event or occasion.
Nonetheless, certain exceptions exist (for example, banks are exempt from this rule), meaning the applicability of these regulations largely depends on the nature of the transaction. Therefore, it is essential to verify that the cash transaction is compliant with the stipulated limits based on the proposed nature of the transaction.
Cash Transaction Limit under Income Tax
The following are the main income tax sections that pertain to cash transaction limit in India:
- Section 40A(3) and Section 43 – Pertains to Cash Payment
- Section 269SS and Section 269ST – Pertains to Cash Receipts
- Section 269T – Pertains to Repayment of Certain Loans / Deposits
Section 40A(3) of Income Tax
Section 40A(3) of the Income Tax Act pertains to cash payment limit for expenditure made in cash. Under Section 40A(3), if payment for any expenditure of over Rs.10,000 is made in cash, then the expenditure will be disallowed under the Income Tax Act. Hence, it is important for all taxpayers to make any payment for the expense over Rs.10,000 through banking channels like debit card, account transfer, cheque or demand draft.
Section 43 of Income Tax
Under section 43 of Income Tax Act, if payment of more than Rs.10,000 is made by a taxpayer for the acquisition of an asset by cash, the expenditure would be ignored for the purposes of determination of actual cost of the asset. Hence, it is important for all taxpayers acquiring assets to make all payments to the seller through banking channels.
Section 269SS of Income Tax
Section 269SS prohibits a taxpayer from taking/accepting loans or deposits or a sum of more than Rs.20,000 in cash. All loans and deposits of more than Rs.20,000 must always be taken through a banking channel. Section 269SS of the Income Tax Act 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
- An institution, association or body or class of institutions, associations or bodies notified by Central Government in the official gazette.
Finally, 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, then the provisions of Section 269SS will not apply.
Penalty under 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 269ST of Income Tax Act – Cash receipt limit
Section 269ST of the Income Tax Act provides that no person can receive an amount of INR 2 Lakhs or more in cash:
- In aggregate from a person in a day;
- In respect of a single transaction; or
- In respect of transactions relating to one event or occasion from a person.
Provisions of Section 269ST are not applicable when cash of more than Rs.2 lakhs is received from the following persons:
- Government;
- Any banking company, post office saving bank or co-operative bank;
- An institution, association or body or class of institutions, associations or bodies notified by Central Government in its official gazette.
Penalty under Section 269ST
As per section 271DA, in case of failure to comply with provisions of section 269ST, a penalty amount equal to the amount of receipt is payable.
Section 269T of Income Tax Act
Section 269T provides that any branch of a banking company or a co-operative society, firm or another person cannot repay any loan or deposit otherwise than by an account payee cheque or account payee bank draft drawn in the name of the person, who has made the loan or deposit, if:
- The amount of the loan or deposit together with interest is INR 20,000 or more; or
- The aggregate amount of loans or deposits held by such person, either in his name or jointly with another person on the date of such repayment together with interest is INR 20,000 or more.
Provisions of section 269T are not applicable when the 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
- An institution, association or body or class of institutions, associations or bodies notified by Central Government in the official gazette.
Penalty under 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.