I would like to highlight on a very important topics CASH TRANSACTION in business as well as other contexts.
CASH Payment is common practice in business. Either in small or large business, CASH is very important part of business. Hence it is very important to understand and take precaution while making the payment to someone in business context with respect to Income Tax Act as well as Goods & Service Tax Act.
As per the Section 40A (3) subject to Rule 6DD of Income Tax Act after amendment in Finance Act 2017 and applicable from 01st April 2017 if any expenses incurred or purchases made in Cash and payment is made over and above Rs. 10000/- in a single day with a single party then this purchase and expenses will be disallowed in business while Computing of Business Income at the time of filing of Income Tax Return. In General, many small businessmen think that this provision is ONLY applicable to those business man whose turnover is covered under Audit, but this is not the actual scenario, this provision is APPLICABLE to all business even it is very SMALL.
After amendment in Finance Act 2017 , Section 32 of Income Tax Act explains if any businessmen incurs any Capital Expenditure in Cash then Depreciation will not be allowed for such fixed assets while cash payment made more than Rs. 10000/-. In this case we need to take precaution while making the payment as it is strictly one-time payment should not be more than Rs. 10000/- or multiple bill of different date valued below Rs. 10000/- but makes all together more than Rs. 10000/- to that single party.
During the Finance Act 2017 a new section is inserted in Income Tax Act as per Section 40A(3A) if any expenses is claimed in previous year and Cash Payment is made in current year exceeding Rs. 10000/- then such amount will be treated as Income of current year.
Further incase Transport Contractor the maximum limit of Cash Payment is upto Rs. 35000/- in a single day.
Additionally, all Individual, whether businessmen or not, have to take care while purchasing of any property, they need to take the precaution while making the payment to seller. In this case payment should not done in Cash more than Rs. 20000/- for any property transaction. This provision of Income Tax Act is applicable from 01st June 2015.
There is also some restriction in Cash Donation to Political Party or any Charitable Institution. It explains that any Individual if he/ she want to claim the Donation made to Political Party or Charitable Institution then maximum cash payment is allowed in this case is Rs. 2000/-.
From 1st April 2017, In case of Cash Purchase of Jewellery exceeds Rs. 200000/- then it will attract 1% Tax Collection At Source. But here we need to also take care that as per Section 269ST of Income Tax Act, no person can receive or make the payment more than Rs. 200000/-. Hence it is suggested that actual purchase amount should be below Rs. 200000/-.
Now let’s discussed about this matter of CASH TRANSACTION in context of Goods & Service Tax (GST) Act . In GST Act there is no limit of Cash sale but as per Rule 46 of CGST Act BUT any consumer or trader make purchases of goods in Cash for Rs. 50000/- or more than then they have required to mentioned the identity along with their address over the invoice and it is suggested to all Such Seller to keep the copy of Identity of all such consumer and enclose the same with the respective invoice to save themselves for future obligations.
Till now, I spoke about the provisions related to Cash Payment but while receiving the cash payment we also need to take the precaution.
As per the Section 269ST of Income Tax Act during any business practice, if any businessmen receives the payment in Cash for Rs. 200000/- and more in one receipt or multiple receipt from a single person in a single day, single transaction, single event such businessmen is liable for PENALTY equivalent to such amount received. In this case payer and recipient both are liable for PENAL action under Section 271DA of the Income Tax Act. This provision is not applicable to transaction made with Government Institution or through Banking Channel, Financial Institution etc.
Hence as per the above explanation it is suggested to all person either businessmen or individual need to take the precaution while making or accepting any cash payment to anyone in relation to business or any other context.