The Income Tax Department while acknowledging Indian society’s affinity with cash transactions warned that the Income Tax Act, 1961 discourages cash transactions and will disallow certain deductions, allowances, expenses, etc if made in cash. Moreover, if certain transactions above a limit are settled using cash, then the tax department will levy a penalty equal to the amount paid in cash if caught.
“Say “No” To Cash Transactions. Individuals prefer to receive, pay, and transfer cash when the amounts of transactional value (money) involved are marginal to small,” said the Income Tax Department in a brochure released on January 2, 2025.
Many people in past have paid heave price of such transaction even when unintended. “I recollect a case where an erstwhile actress without the knowledge of limits of acceptance or repaying of cash loans resorted to a transaction which resulted in levy of penalty of equal amount of loan in her case,” says Ramakrishnan Srinivasan, former chief commissioner of income tax.
Penalty equal to the amount paid via cash will be imposed if caught
The transaction limit varies as per the nature of transaction and who is executing it. In the brochure, the Income Tax Department said the following:
Category A (i)
1. Section 269SS: Taking/accepting certain loans, deposits and specified sums in cash
No person shall accept in cash any loan or deposit or other specified sum if the amount (or aggregate of the amounts) involved total(s) to Rs 20,000 or more. Specified sum means any sum of money receivable, as advance or otherwise, in relation to the transfer of an immovable property whether the transfer takes place or not. The amount or the aggregate amount shall include any cash received earlier and remaining unpaid.
The above mandate does not apply to sums as stipulated accepted from or by-
- The Government;
- A banking company, post office savings bank or co-operative bank (but not all co-operative societies whether or not involved in banking or related activities);
- A corporation established by a Central, State or Provincial Act;
- A government company as defined in section 2(45) of the Companies Act, 2013;
- A notified institution, association or body (or class of institutions, associations or bodies).
- The mandate above is also not applicable if the payer and the payee are both earning agricultural income and neither of them has any income chargeable to tax under the Income Tax Act, 1961.
- Any violation of the above limit attracts heavy penalty. “The penal consequences of violating the mandate above is imposition/levy on the recipient a penalty under section 271D equal to the amount taken in cash,” said the Income Tax Department.
2. Section 269 ST: Receiving other amounts in cash
No person-whether assessed to tax or not-shall take (receive) in cash any amount(s) totalling Rs 2 lakh or more:
- In aggregate from a person in a day; or
- In respect of a single transaction; or
- In respect of transactions relating to one event or occasion from a person.
The mandate as above will apply to:
- Receipt of fees by educational institutions and hospitals;
- Donations by religious institutions;
- Transactions between two related persons or where both the payer and the payee are exempt from payment of tax.
The mandate above does not apply to:
- Any receipt by the Government or any banking company, the post office savings bank or any co-operative bank (but not all co-operative societies whether or not involved in banking or related activities)
- Transactions of the nature referred to in section 269SS;
- Persons or class of persons or receipts as separately notified for the purpose.
“The penal consequences of violating the mandate above is imposition/levy on the recipient a penalty under section 271DA is an amount equal to the amount received in cash,” said the Income Tax Department.
3. Section 269T: Repayments of certain loans or deposits
- No branch of a banking company or a cooperative bank;
- No other company or cooperative society; or
- No firm or other person
Will repay in cash any loan or deposit or any specified advance if the amount (or the aggregate amount) involved with the applicable interest totals Rs 20,000 or more.
● ‘Specified advance’ means any sum of money in the nature of advance by whatever name called, in relation to the transfer of an immovable property, whether or not the transfer has taken place.
● The aggregate amount shall include amounts held by the person in his own name or jointly with any other person on the date of such repayment.
The mandate as above shall not apply to repayment of any loan or deposit or specified advance taken or accepted from:
- The government;
- Any banking company, post office savings bank or co-operative bank (but not all co-operative societies whether or not involved in banking or related activities);
- Any corporation established by a central, state or provincial act;
- Any government company as defined in section 2(45) of the companies act, 2013
- Notified institution, association or body or class of institutions, associations or bodies.
“The penal consequences of violating the above mandate is imposition/levy of penalty on the repayer under section 271E an amount repaid in cash,” said the Income Tax Department.Good news for taxpayers: ITR forms updated to allow 87A tax rebate claims, but there’s a catch
Category A (ii) Provisions of penal nature setting of thresholds for facilitating prescribed electronic modes
1. Section 269SU: Acceptance of payments through prescribed electronic modes
Applicable to every person with a business turnover, sales or gross receipts exceeding Rs 50 crore with exception available only to:
A person:
- Having only B2B transactions; and
- Whose aggregate of all amounts received through non-cash modes during the previous year, including the amount received for sales, turnover or gross receipts, constitute at least 95% of all amounts received;
- An assessee which is 100 percent export-oriented; or
- A foreign company carrying on the business in India through a Permanent Establishment (PE)
- Needs to mandatorily facilitate the acceptance of payments through prescribed electronic modes (in addition to any facility for payments through other electronic modes) as prescribed by the CBDT which currently are (Refer Rule 6ABBA)
- Credit card and debit card;
- Net Banking;
- IMPS (Immediate Payment Service) and NEFT (National Electronic Funds Transfer);
- UPI (Unified Payment Interface) and RTGS (Real Time Gross Settlement), and BHIM (Bharat Interface for Money) Aadhaar Pay
“Section 271DB: The penal consequences of violating the above mandate is a penalty equal to Rs 5,000 for every day during which such failure continues,” said the Income Tax Department.
“This document guides taxpayers about restrictions on cash transactions and promotes the use of digital financial systems. It offers insights into the rules and regulations concerning cash loans, deposits, and expenditures and the penalties associated with non-compliance. The brochure helps to understand cash transaction regulations under the Income-tax Act. It gives taxpayers an overview of compliance rules. However, those new to tax terms might need extra support to make the most of it,” says Rahul Singh, Senior Manager | Advisory & Research, Taxmann Publications.
