The Government of India with an intention to evade black money and to discourage the cash transactions time and again taking various steps. Specially the Income tax Act is amended and provided with disallowances and stringent penal provisions for various types of cash transactions. Let us briefly understand some of such provisions here.

Section 40A(3): Disallowance of Expenses incurred in Cash

Sec. 40A(3): Where any expenditure in respect of which payment is made in excess of Rs. 10,000/- (w.e.f. A.Y. 2018-19) at a time otherwise than by Account-payee cheque or draft or use of electronic clearing system through a bank account, 100% of such payment shall be disallowed.

However if payment is being made for plying, hiring or leasing goods carriages then Limit for these section is Rs 35000/-, instead Of Rs. 10000/-

In respect of Capital Expenditure (Fixed Assets)

Where an assessee incurs any expenditure for acquisition of any asset in respect which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque/ bank draft or use of electronic clearing system through a bank account, exceeds Rs 10,000, such expenditure shall be ignored for the purposes of determination of actual cost of such asset. (Meaning thereby no depreciation benefit will be available on such amount).

Amendment by Finance bill 2018:

Provision of Section 40A(3) and 40A(3A) will be applicable to Charitable and Religious trusts for the purpose of determination of application of fund. Meaning thereby violation of provision of these sections will not be allowed as application of fund.

Section 269SS:  Acceptance of Cash Deposits

No person can accept any loan or deposit or specified sum (Specified sum means any sum of money receivable whether as advance or otherwise, in relation to transfer of an immovable property, whether or not the transfer takes place) of Rs. 20,000 or more otherwise than by way of an account payee cheque or an account payee draft or use of electronic clearing system through a bank account. The limit of Rs. 20,000 will also apply to a case even if on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from such depositor is remaining unpaid and such unpaid amount along with the loan or deposit to be accepted, exceeds the aforesaid limit.

For example: If A has a balance of a loan of Rs.19500/- from B. Now in this case A cannot take loan in excess of Rs.499/- from B except with an account payee cheque or account payee bank Draft or use of electronic clearing system through a bank account.

In case of violation of above provision penalty u/s. 271D of Income Tax Act 1961 shall be levied equivalent to the amount of such loan or deposit or specified sum, so taken or accepted.

Section 269T : Repayment of Loan

Section 269T of the Income Tax Act provides that any branch of a banking company or a cooperative society, firm or other person shall not repay any loan or deposit
otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, who has made the loan or deposit or paid the specified advance (Specified advance means any sum of money in the nature of advance, by whatever name called in relation to transfer of an immovable property, whether or not transfer takes place), if

(a) The amount of the loan or deposit or specified advance together with interest is Rs 20000 or more, or

(b) The aggregate amount of loans or deposits or specified advance held by such person, either in his own name or jointly with other person on the date of such repayment together with interest, is Rs 20000 or more.

For example if A is having loan of Rs 30000 outstanding to B, then he cannot repay such loan in cash to B.

In case of violation of above provision penalty u/s. Section 271E of Income Tax Act 1961 shall be levied equivalent to the amount of such loan or deposit repaid.

Section 269ST

Section 269ST provides — No person shall receive an amount of two lakh rupees or more—

(a) in aggregate from a person in a day; or
(b) in respect of a single transaction; or
(c) in respect of transactions relating to one event or occasion from a person,

otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account:

Provided that the provisions of this section shall not apply to—

(i) any receipt by—
(a) Government;
(b) any banking company, post office savings bank or co-operative bank;
(ii) transactions of the nature referred to in section 269SS;
(iii) such other persons or class of persons or receipts, which the Central Government may, by notification in the Official Gazette, specify.

Example: 1

A made credit sale of Rs.2,50,000 to B for Rs. 1,00,000 and Rs.1,50,000 on two different dates, and if payment received on single day then the Section 269ST is attracted since “aggregate payment received is more than Rs.2,00,000/-”.

Example: 2

A made credit sale of Rs. 2,00,000 to B and two cash payments of RS. 1,00,000 per day are made by B to A on two different dates. Section 269ST is attracted as Rs.2,00,000 cash limit is reached “in respect of a single transaction”.

Example: 3

Suppose a caterer takes order for Convocation Function and received Rs. 10,00,000 in cash from his customer and gives item-wise bill for various services and each bill doesn’t exceed Rs. 2,00,000 and Rs. 10,00,000 cash is received on different dates and cash received on any one day is less than Rs. 2,00,000. This splitting of bills and splitting of payments day-wise will not help as all these payments are “in respect of transactions relating to one event or occasion from a person”.

With regards to repayment of loan received by NBFCs or HFCs, the CBDT has vide circular No.22 of 2017 dated 03/07/2017 clarified that in respect of receipt in the nature of repayment of loan by NBFCs or HFCs, the receipt of one instalment of loan repayment in respect of a loan shall constitute a ‘single transaction’ as specified in clause (b) of section 269ST of the Act and all the instalments paid for a loan shall not be aggregated for the purposes of determining applicability of the provisions section 269ST.

In case of violation of provision of this section penalty u/s. 271DA shall be levied for a sum equal to the amount of such receipt.

TCS on Cash Sales

TCS on Cash Sales of Goods of offering any service for Cash exceeding Rs.2,00,000/- which was introduced in F.Y. 2016-17 was removed from F.Y. 2017-18 due to insertion of Section 269ST.

Also TCS on cash sales of Bullion and Jewellary removed from the F.Y. 2017-18.

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7 responses to “All you need to know about various provisions in relation to Cash transactions under Income tax Act”

  1. Abhishek says:

    Sir i have a business
    Sir i want to know that in B2B Transactions i.e. Goods purchased from dealer and selling it to customer, then which cash limit apply for me whether Rs 10000 or Rs200000.
    This is not business expenditure in my view
    Pl reply

  2. Chirag says:

    Dear Sir, I read your article and I must admit it is very well written!
    I had a query regarding the changes in Sec. 40A(3): Where any expenditure in respect of which payment is made in excess of Rs. 10,000/- (w.e.f. A.Y. 2018-19).

    1. Is this applicable from April 2018 or April 2017? I have this confusion since this was amended in the 2017 budget.

    2. And will there be any problem suppose I was being paid 12,000 by cash each month till March 2018?

    Your help would be greatly appreciated. Thank you

    • dpsodha says:

      Limit of Cash payment in excess of Rs.10000/- applicable for any amount of expenditure incurred on or after 01.04.2017 i.e. from F.Y. 2017-18 onwards.

      I couldn’t get your second query what you exactly asking for

  3. Suraj Jain says:

    Sir, in case of capital asset purchased otherwise than by an account payee cheque/ bank draft or use of electronic clearing system through a bank account, exceeds Rs 10,000 is such payment also disallowed just like normal expenditure or depreciation on such fixed asset will not be allowed but be treated as an expenditure which will be allowed?

    • dpsodha says:

      such expenditure shall be ignored for the purposes of determination of actual cost of such asset. (Meaning thereby no depreciation benefit will be available on such amount).

  4. Sameer Dhoyda says:

    Sir very nice article… We would like to have light on ICDS and its implementation ….

  5. CA ASHISH B KANABAR says:

    Dear sir,
    Thank you very much for in-depth analysis related to cash transactions to be made.

    Your knowledge sharing is welcome on other topics..

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