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.
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)