In today’s era, the government aims to discourage cash payments for both personal and business purposes. This article explores the importance of avoiding cash payments and the implications it has on deductions and tax compliance. By understanding the rules and regulations surrounding cash transactions, individuals and businesses can stay compliant and make informed financial decisions.
The article examines various sections of the Income Tax Act that limit or disallow deductions for cash payments. It covers sections such as 13A(d), 80G, 35AD, and more, which highlight instances where deductions are not permissible for cash transactions. Additionally, penalties under sections 269SS and 269T are discussed, emphasizing the consequences of accepting or making cash payments beyond specified limits.
Donations received by Political Parties: Any political party received donation from any person in cash over Rs. 2,000 donor will not get exemption for donation. Section 13A (d).
Same way deduction u/s 80G will not be allowed in respect of donation of any sum exceeding Rs. 2000 unless such sum is paid by any mode other than CASH.
As per Section 35AD, the deduction is available towards any capital expenditure, wholly and exclusively, incurred for carrying out a specified business. The deduction is not available if any expenditure in respect of which the payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque or bank draft or through such other electronic mode as may be prescribed, exceeds Rs. 10,000 any expenditure incurred on the acquisition of land or goodwill or financial instrument, in CASH.
Section 80D, give deduction in respect of health insurance premium paid for self, spouse, children or dependent parents of an individual. In the case of Hindu Undivided Family, deduction in respect of health insurance premium paid on the health of any member of HUF. If, the payment of premium is made in CASH, deduction is not permissible.
Section 80G: This section allows deduction in respect of donations to certain funds, charitable institutions etc. @ 50% of the amount of donation or 10% of gross total income, whichever is less to the donor. No deduction is allowed in respect of donation of any sum exceeding Rs. 2,000 unless such sum is paid by any mode other than CASH.
Section 80GGB, provide deduction in respect of contributions given by companies to political parties or to an electoral trust in computing the total income of the company. “Political Party” means a political party registered u/s 29A of the Representation of the People Act, 1951. Deduction shall not be allowed in respect of any sum contributed by way of CASH.
Section 80GGC, provides deduction in respect of contributions given by any person, except local authority and every artificial juridical person wholly or partly funded by the Government to political parties or to an electoral trust, in computing the total income of them. “Political Party” means a political party registered u/s 29A of the Representation of the People Act 1951. Deduction shall not be allowed in respect of any sum contributed by way of CASH.
Section 40A(3): As per this section, where the assesse incurs any expenditure for his business or profession, in respect of which a payment or aggregate of payments made to a person in a day, in CASH exceed Rs. 10,000 no deduction shall be allowed in respect of such expenditure.
Section 40A(3A): As per this section, where an allowance has been made in the assessment for any year in respect of any liability incurred by the assesse 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 he profit and gain of business or profession and is chargeable to income tax as income of the subsequent year, if the payment or aggregate of payments made to person in a day exceeds Rs. 10,000.
Exceptions to the above are provided in Rule 6DD of the Income Tax Rules, 1962.
Section 43(1): In a case a person incurs any expenditure for acquisition of any asset in respect which a payment or aggregate of payments made to a person in any day in CASH exceeding Rs. 10,000/, such expenditure is not included for the purpose of determination of actual cost of such asset. The meaning of this, no depreciation benefit will be available on such capital expenditure incurred in CASH.
Section 269SS: As per this section, no person shall take or accept from any other person, i.e. depositor any loan or deposit or any specified sum in CASH, for Rs. 20,000/ or more. For this purpose there is a heavy penalty provided u/s 271D of the Income Tax Act, 1961, a sum equal to the amount of the loan or deposit so taken or accepted.
Section 269T: As per this section, no person shall receive an amount of Rs. 2,00,000 or more in CASH-
- In aggregate for a person in a day; or
- In respect of a single transection; or
- In respect of transections relating to one event or occasion from a person
For this also penalty u/s 271D of the Act will be levied.
It is advisable to all the persons, to take care and try to avoid any payment in CASH.
Conclusion: It is highly recommended to avoid cash payments in order to ensure eligibility for deductions and maintain tax compliance. By utilizing alternative payment methods such as UPI payments, credit cards, online banking, and account payee cheques, individuals and businesses can safeguard their deductions and avoid penalties. Understanding and adhering to the regulations outlined in the Income Tax Act will contribute to a more transparent and compliant financial ecosystem.
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