Gradually, the Indian Economy is getting digitalized and ultimately moving towards a cashless economy. Electronic transactions ensure a clear money trail and make it very difficult for tax evaders. In a bid to curb black money as well as limit the number of cash transactions, the Government from time to time has introduced many new provisions putting restrictions on cash transactions.
Some of the important provisions under the Income Tax Act are given below:
The section states that no person shall receive an amount of INR 2 Lakhs or more in CASH in aggregate from a single person in a day: in respect of a single transaction or in respect of transactions relating to one event or occasion from a person. The provisions shall be applicable whether the person is a seller or service provider or transfer of capital assets.
1. Any amount received by-
– any banking company, post office savings bank or co- operative bank;
2. Transactions of the nature referred to in section 269SS;
3. Such other persons or class of persons or receipts, which the Central Government may, by notification in the Official Gazette, specify.
Penalty: Any person who enters into such a transaction in cash, will be liable to a penalty of an amount equivalent to the amount of transaction receipt under Section 271DA.
Some illustrations for a better understanding:
1. Single Person: Cash receipt of INR 2 lakh or more received in multiple transactions from a single person in a day.
Example: Mr. Ankit buys a jewellery for his wife worth Rs. 2 lakh and pays the amount to the jeweller Mr. Yash in 5 equal instalments on a single day. Since, Mr. Yash has accepted Rs. 2 lakhs in cash, Section 269ST is applicable and Mr Yash has to pay a penalty of Rs. 2 Lakh.
2. Single Transaction: Cash Receipts of INR 2 lakh or more received in instalments for a single transaction.
Example: Mr. Ankit had a surgery in the hospital worth Rs. 5 lakhs. Mr Ankit paid off the bill in 5 equal instalments on 5 different dates. Even if each of the transaction is less than Rs. 2 lakhs, the hospital has received cash above 2 lakhs in total with regard to a single transaction/bill. Hence, Section 269ST shall be applicable and the hospital has to pay the penalty.
3. Single Event/Occasion: Cash Receipts related to a single event/occasion cannot me more than INR 2 Lakh.
Example: Mr. Ankit accepts an order of catering and tent for a marriage event. He accepts cash of Rs. 1,50,000 for catering and Rs. 1,00,000 for tent. The section shall be applicable irrespective of cash received in different dates. All the cash transactions are related to a Single Occasion. And hence, penalty shall be leviable.
A person cannot accept loan or deposit or any other specified sum from another person otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, if –
i. Amount of loan or deposit or specified sum is Rs. 20,000 or more, or
ii. Sum total amount of loan, deposit and the specified sum is Rs. 20,000 or more
iii. In a case where a person had already received a loan, deposit or specified sum from the depositor but the loan or deposit or specified sum hasn’t been paid back in such case, if the unpaid loan or deposit or-specified sum is Rs. 20,000 or more, or
iv. The aggregate of amount referred above is Rs. 20,000 or more.
Therefore, a person cannot accept cash loan or deposit of Rs. 20,000 or more from another person.
Penalty: 100% of the loan amount shall be the quantum of penalty than can be levied.
The section prohibits any person to repay the loan or deposit or specified sum otherwise than by an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account, if –
1. Amount of loan or deposit, including interest amount, is Rs. 20,000 or more, or
2. The aggregate amount of loans or deposits, including the interest amount, held by such person in his own name, or jointly with any person, is Rs. 20,000 or more.
Hence a person cannot repay the loan or deposit in cash, if the amount is Rs. 20,000 or more.
Penalty: 100% of the loan or deposit amount may be leviable.
It states that where an assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day exceeds Rs. 10,000 (Rs. 35,000 in case the payment is made for plying, hiring or leasing of goods carriage). Such expenditure made shall be allowed in the books of account.
If the amount is paid through an account payee cheque drawn on bank or account payee bank draft or use of electronic clearing system through a bank account, such section shall not be applicable.
Section 40A(3A): The restriction is also applicable if the assessee had claimed a deduction in respect of any expenditure relating to a previous year and payment to such expenditure is made during the current year.
If during the current year payment made in a day exceeds Rs. 10,000/35,000.
Section 80G: Donating more than Rs 2,000 in cash is again violation of the tax laws. No deduction shall be allowed from the gross total income.
Section 80GGB/80GGC: Any sum contributed by an Indian Company to any political party or an electoral trust in the form of cash shall not be allowed as deduction in computing taxable income.
No deduction shall be allowed if the Health Insurance Premium is made by the taxpayer in the form of cash.
While concluding, it may be noted that, no doubt a taxpayer is required to adhere to all the provisions under the income tax act for tax compliances and to get tax benefits. But at the same time, the assessee should route the transactions via digital mode in order to curb black money.