Tag: high-value cash transactions

Cash Transaction limit 23-24, Income Tax Department Notifies E-Flyer on Cash Transactions with Limits

Income Tax Department has recently circulated an E-Flyer containing detailed information about cash transaction limits and highlighting the severe consequences concerning cash transactions of specific types. Taxpayers and business professionals are strongly advised to completely avoid engaging in cash transactions, as non-compliance can lead to significant penalties.

Here are the implications of some of the specific types of cash transactions:

Taking or Accepting Certain Loans, and Deposits:

It is not allowed for any individual or entity to accept ₹20,000 or more in cash for the following purposes:

  • Loans or deposits
  • Amounts related to the transfer of immovable property (even if the transfer does not occur)

If any cash received for these purposes remains outstanding and needs to be repaid, the aggregate limit of ₹20,000 is applicable to the pending amount and any subsequent cash receipts.

Cases Where This Provision Does Not Apply-

Acceptance of such sums from:

  • Government
  • Banking companies, post office savings banks, or cooperative banks
  • Corporations established by central, state, or provincial Acts
  • Government companies as defined in clause (45) of section 2 of the Companies Act, 2013
  • Institutions, associations, or body or class of institutions, associations, or bodies specified by the Central Government through a notification in the Official Gazette.
  • Individuals having agriculture income, provided both the recipient and the person are not liable to income tax.

Violations Consequences: Violation of this provision incurs a penalty equal to the amount taken in cash.

Particular Loans or Deposits Repayment:

Branches of banking companies, cooperative societies, firms, or individuals are not allowed to repay loans or deposits in cash if:

  • The loan or deposit amount or stated advance, together with interest (if applicable), is ₹20,000 or more.
  • The aggregate amount of loans or deposits or stated advance, held by such person (individually or jointly with others) at the time of repayment, including interest (if applicable), is ₹20,000 or more.
  • TDS (Tax Deducted at Source) at a rate of 2% is applicable on cash withdrawals of ₹1 crore or more in a year from a bank account for business purposes, effective from the 2019-20 financial year.

To Any Person Who Has Made-

  • The loan or deposit or
  • Paid the specified advance

Cases where this provision does not apply-

The repayment of loans or deposits received or taken from:

  • Government
  • Banking companies, post office savings banks, or cooperative banks
  • Corporations set up by central, state, or provincial Acts
  • Government companies as mentioned in clause (45) of section 2 of the Companies Act, 2013
  • Some other institutions, associations, or body or class of institutions, associations, or bodies specified by the Central Government through a notification in the Official Gazette. (Refer to Sec. 269T)

Specified advance refers to any amount of money provided in the form of an advance, regardless of the name used, in connection with the transfer of immovable property, regardless of whether the actual transfer occurs or not.

Violation Consequences: Violation of this provision results in a penalty equal to the amount of the loan or deposit repaid.

Additional Cash Transactions

It is not allowed for any individual to receive ₹2,00,000 or more in cash under the following circumstances:

Cases where this provision does not apply-

(i) Any receipts by:

  • Government
  • Banking companies, post office savings banks, or cooperative banks

(ii) Transactions specified in Section 2695S.

(iii) Other persons or categories of receipts specified by the Central Government through notification in the Official Gazette (refer to Section 2695T).

With effect from the 2019-20 financial year, digital payments and other prescribed electronic modes are accepted in addition to account payee cheques, account payee bank drafts, or electronic clearing systems through a bank account. Individuals with business income and a turnover/receipt exceeding ₹50 crores in a financial year are required to accept payments through the stipulated electronic mode or other electronic modes only. Failure to comply with this requirement will result in a penalty of ₹5,000 per day during which such failure continues.

Violation Consequences: Violating this provision incurs a penalty under Section 271DA equal to the amount of the cash receipt.

Disallowance of Cash Expenses

If an individual spends money for their business or profession, and the total amount paid in cash in a single day exceeds ₹10,000, then 100% payment will be excluded when determining their taxable income from the business or profession. (Refer to Section 40A(3)). However, certain exceptions are there (see Rule 60D of the Income Tax Rules).

Read more at: https://taxconcept.net/income-tax/these-5-cash-transactions-can-get-you-an-income-tax-notice/

Deemed Income of the Following Year When Payment is Completed

If a person has been granted regarding a liability they incurred for certain expenses, and in a later year they make a cash payment to settle that liability, the payment will be subject to income tax as income for the subsequent year if the payment or the total of payments made to a person in a single day exceeds Rs. 10,000.

Instead of the previous limit of ₹10,000, payments made for the operation, hiring, or leasing of goods carriages have a higher threshold of ₹35,000.

Disallowance for Fixed Assets (Capital Expenditure)

If a person incurs any expenditure for the acquisition of an asset, and the payment or aggregate of payments made to a person in cash in a day exceeds ₹10,000, such expenditure is not included in determining the actual cost of the asset. Consequently, no depreciation benefit will be available on such capital expenditure incurred in cash.

Cash Donations

Cash donations exceeding ₹2,000 made to a registered trust or political party are not eligible for deduction under Section 80G.

Health Insurance Premiums

Payments made in cash for health insurance premiums are not eligible for deduction under Section 80D of the Income Tax Act.

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Income Tax notice: 6 high-value cash transactions that can get you flagged by Income Tax Department

The Income Tax Department takes cognizance of certain high-value transactions that could land you in the legal net if ignored. To prevent tax evasion and money laundering, tax authorities closely monitor a variety of cash-related transactions. Financial institutions, including banks, mutual fund companies, brokerages, and property registrars, have an obligation to report cash transactions exceeding a specific threshold to the tax department. Below are several cash transactions subject to vigilant monitoring by tax authorities:

Acquisition of real estate assets

In accordance with Section 12 of the Prevention of Money Laundering Act, 2002 (PMLA), property registrars are mandated to notify tax authorities about any acquisitions or sales of immovable properties valued at ₹30 lakh or higher. This notification must be submitted within 30 days from the date of property registration. The property registrar must furnish the following details to the tax authorities:

  • The names and addresses of both the buyer and seller
  • The transaction date
  • The property type (e.g., land, house, apartment, etc.)
  • The property’s location
  • The sale or purchase price of the property

This data is utilized by tax authorities to monitor substantial cash transactions and identify potential instances of tax evasion and money laundering. The property registrar must report all transactions involving the purchase and sale of immovable property valued at ₹30 lakh or higher, irrespective of whether the payment is made in cash or by cheque.

Acquisition of stocks, mutual funds, debentures, and bonds

Companies or institutions that issue bonds or debentures must compulsorily report any receipt of ₹10 lakh or more from an individual during a financial year for the acquisition of bonds or debentures. This reporting measure is implemented to prevent tax evasion and money laundering.

Likewise, companies that issue shares must report any receipt of ₹10 lakh or more from an individual within a financial year for the acquisition of shares. This reporting obligation also extends to the purchase of mutual funds.

The company or institution must provide the following information to the Income Tax Department:

  • Investor’s name and address
  • Investor’s PAN number, if provided
  • Purchase date
  • Purchase amount
  • Type of security acquired (e.g., bond, debenture, share, mutual fund unit).

This data enables the Income Tax Department to identify taxpayers who may not be disclosing their complete income or who are engaging in suspicious investment activities.

The reporting mandate is applicable to investments made by individuals, Hindu Undivided Families (HUFs), and partnership firms, and it does not extend to investments made by companies.

Acquisition of foreign currency

Any purchase of foreign exchange amounting to ₹10 lakh or more during a financial year must be reported to the Income Tax Department. This reporting obligation is applicable to individuals, HUFs, and partnership firms, but it does not pertain to companies.

The subsequent foreign exchange transactions must be reported to the Income Tax Department:

The establishment that supplies you with foreign exchange is obligated to notify the Income Tax Department of the transaction. For instance, if you buy foreign currency notes and coins from a bank, the bank must report the transaction to the Income Tax Department.

This reporting mandate is implemented to deter tax evasion and money laundering. The Income Tax Department can utilize the provided information to identify taxpayers who are either underreporting their complete income or engaging in questionable foreign exchange transactions.

Cash deposits in bank accounts

The Central Board of Direct Taxes (CBDT) has instituted a compulsory rule for banks and cooperative banks to notify the tax authorities regarding cumulative cash deposits of ₹10 lakh or more in one or more accounts (excluding current accounts and time deposits) held by an individual within a financial year. This regulation is implemented to combat tax evasion and money laundering. The bank or cooperative bank must submit the following details to the CBDT:

  • The depositor’s name and address
  • The depositor’s PAN number, if provided
  • The date of the cash deposit
  • The cash deposit amount
  • The account number(s) in which the cash deposit was placed

This data empowers the CBDT to pinpoint taxpayers who may not be disclosing their entire income or engaging in questionable cash deposits. This reporting obligation is applicable to cash deposits in one or more accounts, excluding current accounts and time deposits, held by an individual. In essence, if you make several cash deposits, each of which is less than ₹10 lakh, but the cumulative cash deposit amount in a financial year reaches ₹10 lakh or more, the bank or cooperative bank is mandated to notify the CBDT.

Money deposited in fixed deposits

The CBDT has stipulated that banks are obligated to report instances where an individual accumulates ₹10 lakh or more in a fixed deposit (FD) within a financial year, spanning one or more time deposits (excluding renewals). This reporting measure is implemented to deter tax evasion and money laundering.

The bank must furnish the following details to the CBDT:

  • The depositor’s name and address
  • The depositor’s PAN number, if provided
  • The date of the cash deposit
  • The cash deposit amount
  • The account number(s) where the cash deposit was made

This data enables the CBDT to pinpoint taxpayers who may be underreporting their total income or engaging in dubious cash deposits. These are instances of cash deposits into time deposits that necessitate reporting to the CBDT:

  • An individual deposits ₹5 lakh in cash into a new FD in January 2023.
  • An individual deposits ₹3 lakh in cash into an existing FD in February 2023.
  • An individual deposits ₹2 lakh in cash into a new FD in March 2023.

The cumulative cash deposit in time deposits for the financial year 2022-2023 amounts to ₹10 lakh, therefore, the bank is obligated to report this to the CBDT. The obligation to report pertains to cash deposits in time deposits by individuals, HUFs, and partnership firms, excluding companies.

Payments made using credit cards

The CBDT has imposed a compulsory requirement on credit card issuers to notify the Income Tax Department regarding cash payments totalling ₹1 lakh or more for credit card balances. Additionally, if an individual settles credit card dues amounting to ₹10 lakh or more through any means in a fiscal year, these transactions must also be reported to the tax department.

The purpose of this reporting requirement is to combat tax evasion and money laundering. The Income Tax Department can employ this information to detect taxpayers who may not be accurately disclosing their complete income or those engaged in questionable credit card payments. The credit card issuer must provide the following details to the Income Tax Department:

  • The credit cardholder’s name and address
  • The credit card holder’s PAN number, if provided
  • The payment date
  • The payment amount
  • The payment method (e.g., cash, cheque, NEFT, etc.)

Should you intend to make a cash payment of ₹1 lakh or more towards your credit card dues, it’s important to be mindful of this reporting obligation. Additionally, you should be ready to furnish the required payment details to the credit card issuer.