Implication of Cash transactions under Income Tax Act, 1961

By CA V Pranesh Kumar Income Tax Articles , Judiciary September 1, 2023

Introduction

Cash is considered as a monetary consideration to fulfil a transaction between payer and payee. In India post demonetization and evolution of UPI as a medium of transfer of money changed the transaction settlement drastically. Government encourages cashless transaction rather than cash transaction for transparency, levy of tax, avoidance of black money, corruption etc., Hence through Income tax Act, 1961 cash transaction has been limited, restricted in certain cases. In this article you will get insights about how much you are allowed to transact in cash.

Restriction on Expenditure (Revenue & Capital)

Decoding of section 40A (3) & 40A (3A)

Section 40A(3)

Section 40A(3A)

Where payment is made in the year in which expenditure is incurred, 100% disallowance if the payment is in excess of Rs.10,000 is made not by A/c payee cheque/draft/ECS/such other electronic mode as may be prescribed (Rule 6ABBA*)

Where payment is made in the subsequent years (after deduction has been claimed in an earlier year on due basis) and the payment in respect of such expenditure is in excess of Rs.10,000 is made not by an A/c payee cheque/draft/ECS/such other electronic mode as may be prescribed (Rule 6ABBA*) then 100% of expenditure is disallowed

For applicability of this section following two conditions has to be satisfied: