Cash Transaction Limit For F.Y. 2020-21 | Income Tax Act, 1961
The income tax act, 1961 limits its cash transaction through several provisions for various reasons like;
- Encouraging transparency in business
- To stop money laundering and Tax evasion
- Creating a healthy environment for businesses to grow with transparency
- Creating a healthy environment for easy audits and investigations under IT Act, 1961.
The provisions for cash transactions can be summarised under: -
SECTION 269SS - ACCEPTANCE OF LOANS, DEPOSITS, AND SPECIFIED AMOUNT
- No person has the permission to accept any loans or deposits in cash if the aggregate amount is Rs. 20,000 or more.
- A specified amount is any amount receivable as advance or to transfer any immovable property.
- The aggregate sum must include any cash received or remaining unpaid earlier.
Exception in provision can be accepted by
- The government
- Any banking organisations, post office
- Any organisation incorporated by Central or State or provisional act
- Any Govt organisation comes under section 2(45) of the Company act, 2013.
- Any Institution, association, or body of the association.
It is also not applied if both the parties, payer and receiver have an agricultural income source, as agricultural income does not come under the Income Tax Act.
The consequences of violation Under section 271D levies an equal amount of fine as a penalty, for the amount of cash taken violating the rules of IT act, 1961.
SECTION 269ST - OTHER CASH TRANSACTION
- No person can receive an amount of Rs. 2,00,000 or more in cash;
- In total from a person in a day,
- In a single transaction
- Any transaction related to a single event or occasion from a person.
Exception of the provision under section 269ST
(a) Receipts from govt or non-govt banking company, post office savings bank, cooperative bank
(b) Any nature of transactions under section 269SS
(c) Notified persons or receipts
Consequences of violation comes under section 271DA, which is the violator will be subject to pay the same amount of violated sum as penalty money.
SECTION 269SU - ACCEPTING PAYMENT THROUGH ELECTRONIC MODES
Any person or organisation having turnover or profit of 50 crores or more than that in a fiscal year for the business are required to facilitate electronic mode of payment transactions. Failure to do so can end up with a penalty of rs. 5000 every day till the failure continues, under section 271DB.
SECTION 269T - REPAYMENT OF CERTAIN LOANS OR DEPOSITS
• No branch of a financial organization or a cooperative society and no other company or cooperative society and no firm or other person is permitted to repay any loan or deposit or any specified advance received by it in cash if such amount (or the combination amount) along with interest is Rs. 20,000/- or more.
• specified advance’ refers to any amount of cash within the nature of advance, name however you want to, in reference to the transfer of 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 another person on the date of such repayment.
There are certain exceptions to this provision. these provisions shall not apply to repayment of any loan or deposit or specified advance taken or accepted from –
2. Any banking concern, post office savings bank, or co-operative bank;
3. Organizations established by a Central, State or Provincial Act;
4. Any Government organization defined in Section 2(45) of the companies Act, 2013.
5. Notified institution, association, or body or class of institutions, associations, or bodies.
Consequences of violation under Section 271E: Penalty for an amount adequate to the quantity of such loan or deposit or specified advance so repaid is going to be levied.
Disallowance of expenses incurred in Cash [Refer Section 40A(3)] & Deemed Income of business or profession if the expenditure is incurred in one year and payment is formed in taking advantage the next year [Refer Section 40A(3A)
• If an individual incurs any expenditure for his business or profession, in respect of which payment or aggregate of payments made to an individual during a day in cash exceeds Rs. 10,000/-, no deduction can be made in respect of such expenditure.
• If an allowance has been made in respect of any liability incurred by an individual for any expenditure, and later during any subsequent year the person makes payment in respect thereof, in cash, the payment so made is deemed to be Profits and Gains of business or profession and is chargeable to income-tax as income of the next year, if the payment or aggregate of payments made to an individual during a day exceeds Rs. 10,000/-.
• Exceptions to the above are provided in Rule 6DD of the tax Rules, 1962.
• Any payments if done for plying, hiring, or leasing goods carriages, then the limit is Rs.35000/-.as mentioned.
2ND PROVISION TO SECTION 43(1) - DISALLOWANCE OF DEPRECIATION
In case any individual or business incurs any expenditure for acquisition of any asset in respect which a payment or aggregate of payments made to an individual during a day in cash exceeds Rs.10,000/-, such expenditure is not included to determine the actual cost of such asset. This means that no depreciation benefits are going to be available on such costs incurred in cash.
SECTION 80D(2B) - DEDUCTION IN RESPECT OF HEALTH INSURANCE PREMIUMS
Section 80D offers deduction in respect of health insurance premiums. However, the payment must be made by any mode other than cash. The exception is provided in case of any amount paid on account of preventive health check-ups.
Cash Donations exceeding Rs. 2000/-
Section 80G offers deduction in respect of donations to certain funds, charitable societies, etc. No deduction is allowed under section 80G in respect of donation of any amount exceeding Rs. 2000/- unless such sum is paid by any mode apart from cash.
Cash donations exceeding Rs. 10,000/-for scientific research or rural development
Section 80GGA allows deduction in respect of certain donations for research projects or rural development. No deduction is allowed in respect of any amount exceeding Rs. 10,000/- (Rs. 2,000/- we.f. 01.06.2020) unless such amount is paid by any mode other than cash.
SECTION 80GGB & SECTION 80GGC
Cash contributions given to political parties
Section 80GGB allows a deduction to Indian Companies in respect of any sum contributed to any political party or an electoral trust. Similar deduction is allowed Under section 80GGC to other persons (except local authority and every artificial juridical person wholly or partly funded by the Government).
Though, no deduction is allowed in respect of any amount contributed by them in cash.
SECTION 194N - TDS ON PAYMENT OF CERTAIN SUM IN CASH
However, in the case of a person who has not filed returns of income for the last three assessment years relevant to three previous years for which the time limit to file return u/s 139(1) has expired the applicable TDS rate is 2% on cash withdrawals in excess of 20 lakhs and up to 1 crore and 5% on cash withdrawals above Rs. 1 Crore.
PROVISION TO SECTION 44AB(A):(THE THRESHOLD LIMIT FOR AUDIT OF ACCOUNTS INCREASED IF CASH TRANSACTIONS DON'T EXCEED 5%)
The threshold limit for Tax Audit has been increased from 5 Crores to 10 Crores provided that: –
The mixture of all cash receipts during the year doesn't exceed 5% of total receipts, and Aggregate to all or any cash payments during the year doesn't exceed 5% of total payment.
The mentioned provision is slated to be applicable w.e.f. the assessment year 2022-23.
Mr Sujit Bala is a founder & Director of Tax Seva Kendra.in. He has more than 10 years of experience in the field of Accounts, Taxation and Company law matters.