Arjuna (Fictional Character): Krishna, for accepting cash people have become very much conservative. Please tell me what precautions anyone should take while accepting cash?

Krishna (Fictional Character): Arjuna, From Governments point of view if there are more transactions incurred in cash then there is a high possibility of tax evasion. Transactions like Cash Sale and purchase, expenses, investments, exchange on various levels have restrictions. In Income Tax it is important that everyone must know it.

Arjuna: Krishna, what are the restrictions in the income tax on cash transactions?

Krishna: Arjuna, on cash transactions if cash accepted of Rs. 2 Lakh or more then there is 100% penalty on it to acceptor as per section 269ST. To a single person or on one day or through one transaction if Rs. 2 Lakh or more is accepted in cash then there is penalty. It means following four rules must be considered: (1) Rs. 2 Lakh or more (2) one person (3) One day (4) one transaction must be followed.

Beware‼ Penalty on cash receipt of Rs. 2 Lakhs or more

Arjuna: Krishna, What is meant by one person?

Krishna: Arjuna, One person not allowed to take more than Rs. 2 Lakh in cash means that one person cannot take more than 2 lakhs in cash from any one person. For ex: If A Sell goods amounting to Rs 1 lakh and gives bill no. 1 to B customer and on the same day gives another bill no. 4 amounting to Rs. 1.5 lakhs, total amounting to Rs. 2.5 Lakh so on such transactions seller may be levied with a penalty of 100%.

Arjuna: Krishna, What is meant by one single day?

Krishna: Arjuna, if in one single day a person receives more than Rs. 2 Lakhs in cash then such transactions may be liable to penalty. For ex: A seller makes a credit sale of Rs 1 lakhs on 8th of April to customer B, he further makes a credit sale of Rs. 2 Lakhs on 9th of April to customer B. If A receives Rs. 3 Lakhs in cash from B on 10th April then seller may be levied with a penalty.

Arjuna: Krishna, what is meant by one transaction?

Krishna: Arjuna, one transaction means if the amount on the bill goes more than 2 Lakhs and even if such amount is received through cheque or online transfer and partly in cash then also such transactions may be liable to penalty. For Ex.: A seller makes a credit sale of Rs. 2.5 Lakhs to Customer B on 20th April and on 22nd April the customer B pays Rs. 2.25 Lakh through Cheque and Rs. 25,000 in cash still in such transaction seller A may be liable for penalty because the transaction has gone beyond Rs. 2 Lakhs.

Arjuna: Krishna, Does that means any sale or cash received above 2 Lakhs should not be done?

Krishna: Arjuna, Yes penalty may be leived on transactions if cash is received from one person in a single day and in a single transaction. However the penalty can be escaped if the amount of transaction is below Rs 2 Lakh. For Ex.: on 5th April A makes a sale of Rs 1.5 Lakhs to Customer B and receives Rs 1.5 Lakhs in cash on the same day then no penalty will be levied. Even if on 6th April A makes a sale of Rs 1.75 Lakhs to Customer B and receives the same in cash on the same day then also no penalty will be levied on such transaction. But still one should avoid cash transactions. In future this habit of cash transaction might create problem.

Arjuna: Krishna, Will there be penalty if cash amounting to more than Rs 2 Lakhs is deposited or withdrawn from the bank?

Krishna: Arjuna, on 5th April 2017, income tax department issued a clarification that no penalty will be levied on cash deposits or withdrawals in any national bank or a Cooperative bank or a post office. This clears everyone’s misunderstanding. Also transactions done with following persons will not attract penalty 1) Government 2) any person appointed by the government

Arjuna: Krishna, what one should learn from this cash transaction?

Krishna: Arjuna, cash transactions must be done very cautiously. Gifts etc. amounting to more than Rs 2 Lakhs received in cash may attract penalty. This will affect Jewellers, Hospitals, builders, persons who carry business in cash. Further cash purchases or expenses above Rs 10,000 may be levied a penalty, earlier the limit was Rs. 20000. Transactions must be done through banks only. The provisions of the law are also getting very strict. The government is bringing strict action on Black money and unaccounted income. Everyone must incur transactions of cash after understanding the provisions of cash transactions. Hence from now tax payer should obey the law and if he does not then he might have to face problem in the future.

Disclaimer: The contents of this article are for information purposes only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.

(Republished with Amendments by Team Taxguru)

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36 Comments

  1. K RAVI KUMAR says:

    A sold goods to b more than 2lakhs in different dates and receive cash against above bills partly above 2 lakhs, the business have been contained

    Every day the balance is contained
    * there is total turnover sold to b 50 lakhs

  2. Devendra says:

    Dear sir,
    Suppose a customer have loan account with multiple branches of one organization, then the customer can pay’s more than 200000 Rupee’s in terms of cash, including all branches then what is the effect to that organization or that person
    Example: ABC Ltd have multiple branches say 100 in multiple place’s in a city or state, if B is the customer with 20 branches, then the customer B pays more than 200000 cash in all 20 branches then what is the effect to ABC Ltd or B

  3. rajendra prasad says:

    sir,
    i am a wholesale kirana trader at gorakhpur up.
    i want to know that can i sale in cash in a day above 2 lacs in diffirent name of custmers according
    269 st act after 1 april 2017.
    pls reply .
    thank you

    1. shubham says:

      No, if you have raise the different invoices in the name of different person then the penalty under section 269ST will not levy.

  4. Shrikant says:

    That view about single transaction splitting is incorrect. Sir, professionals read “Taxguru” for legal interpretations and not for government propaganda. Avoid giving political overtones to your articles.

  5. Heena Garg says:

    Seller cannot make cash sale above Rs. 2 lakhs and at the same time you cannot make payment of cash purchase above Rs.10,000. So considering the two together can we say that you cannot make cash sale/purchase above Rs.10,000. ?

    Please clarify.

  6. Navneet Agarwal says:

    What will happen if credit sale of 3lakhs is made to customer and the whole 3 lakhs is received through cheque or account transfer?

    1. Muralikrishna Gorlu says:

      Yes.. you can…
      Law says that, amount received in one day by any mode from one person is more than 2 lakhs it’s amounts to penalty.
      It doesn’t mention single bill.

      1. Prasanna says:

        If the Bill is more than Rs2lacs it will be considered as single transaction. So if cash is received against this transaction may attract the penalty.

  7. GANDHI MOHAN BHARATI says:

    What about gifts, in cash, received during weddings, with no individual making a gift of more than 500/- but the total received is 3.00 Lakhs ?

  8. Lalit says:

    if we a seller makes a credit Sale of Rs. 2.25 on dated 02nd April and received Cash 1 lac on 02nd april and balance on 03rd April in cash what would be penalty on above transaction.?

  9. Sanjeev K Arora says:

    Krishna: Arjuna, one transaction means if the amount on the bill goes more than 2 Lakhs and even if such amount is received through cheque or online transfer and partly in cash then also such transactions may be liable to penalty. For Ex.: A seller makes a credit sale of Rs. 2.5 Lakhs to Customer B on 20th April and on 22nd April the customer B pays Rs. 2.25 Lakh through Cheque and Rs. 25,000 in cash still in such transaction seller A may be liable for penalty because the transaction has gone beyond Rs. 2 Lakhs.

    ?

    *Example is not correct ji*

    1. RAJENDRA LODHA says:

      Your Example regarding Partly Cash received in below Rs.200000/= in single day against the credit invoice for more than Rs.200000/= is not correct. Ex. Credit invoice Rs.300000/= and amount received 201000/= in cash and balance in cheque then, penalty would be liable or in contrary if amount received Rs.201000/= in cheque and balance Rs.99000/= in cash, no penalty would be liable as per sec.269ST.

  10. Shyam says:

    Can a Firm sales the goods on CASH SALES BASIS to no. of Customers of amounting Rs. 25000 to 40,000 in single bill and collect the total cash amount more than 10 lakh, then.

  11. keerthichandra says:

    Withdrawls from BANK are exempted vide press release,not only from NATIONAL BANK.Think so.
    please correct if i am wrong

    Thanks

  12. A V L RAO says:

    It would have been better if Arjuna has asked a few questions on behalf of Credit Cooperative Societies registered under State Cooperative Acts. These Societies give Loans to members and collects deposits from members. They deal not with public but with members only.
    1. Rs. 10 Lakhs loan is given by the society and repayment is collected from members through EMI. If cumulative collection of such EMI cross Rs. 2.00 Lakhs does it attracts penalty?
    2. A member opens a Pigmy Account and deposits Rs. 1000/- per day. On crossing Rs. 2.00 lacs (cumulative)in one account does it attracts penalty?

  13. Sanjaysoni says:

    SIR, I AM BUSINESSES MEN I HAVE PURCHASE AGRICULTURE PRODUCE FROM FARMERS THEN I HAVE PAID CASH IN SINGLE DAY AND SINGLE FARMER AS PER BELOW- 1. i have paid 25000/- cash in single day. 2. i have paid 300000/- in single day to farmer. WHAT LIABILITY CREAT IN HAND OF ME(BUSINESSES MEN) AND IN HAND OF FARMER.

    1. S A Suresh says:

      Dear Sanjay,

      As a business man more than Rs. 2 Lacs has to be paid in cheque/DD for wire transfer, however you can buy in different days.

      Farmer A – On 10th April 1.95 lacs
      Farmer A on 11th April 1.05 lacs

    2. Akhil says:

      it is a business expenditure for u, for which sec 40A(3) will apply and not 269ST , As per Sec 40A(3) no dis allowance is made for purchase of agriculture produce in Cash. Hence there shall be no tax liability in ur hands, but not the same in case of farmer. 269ST provisions shall apply to Farmer..Character of receipt is irrelevant i.e. exempt income / taxable income etc. There is no exemption even for sale of agricultural produce. Thus even if farmer sells produce for Rs 2 Lakh or above he can not receive in cash.

  14. S A Suresh says:

    Yes if Rs. 2.5 Lacs credit sales is made and Rs.2.25 lacs received in cheque and Rs. 0.25 Lacs received in cash, Section 269 ST is not violated and there will be no Penalty.

    The explanation given is not correct.

  15. Pallavi Vohra says:

    Arjuna: Krishna, what is meant by one transaction?

    Krishna: Arjuna, one transaction means if the amount on the bill goes more than 2 Lakhs and even if such amount is received through cheque or online transfer and partly in cash then also such transactions may be liable to penalty. For Ex.: A seller makes a credit sale of Rs. 2.5 Lakhs to Customer B on 20th April and on 22nd April the customer B pays Rs. 2.25 Lakh through Cheque and Rs. 25,000 in cash still in such transaction seller A may be liable for penalty because the transaction has gone beyond Rs. 2 Lakhs.

    Not agree with this point. If 2.25 lakh paid by cheque,then this provision should not be attracted.

      1. S A Suresh says:

        269 ST will not be violated if we take Rs. 2.25 Lacs in cheque and Rs. 0.25 lacs in cash.

        We can take cheque for Rs. 2.25 Lacs and Cash for Rs. 0.25 , there will not be any penalty.

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