prpri Reporting & Restriction on cash transaction under Income tax Act Reporting & Restriction on cash transaction under Income tax Act

Restrictions

There are many sections in the income tax which discourages or restrict the usage of cash, some sections create the disallowance the of expense and other penalise the person doing the cash transaction, some of which are given as follows: –

> Section 13A (Special provision relating to incomes of political parties): Exemption to the political party will be denied if donation exceeding ₹ 2,000 is received otherwise than by an account payee cheque/draft/use of electronic clearing system through a bank account or through electoral bonds.

> Section 35AD (Deduction in respect of expenditure on specified business.): No deduction under section 35AD shall be allowed in respect of a payment or aggregate payment per day made to a person against such expenditure otherwise, then an account payee cheque/draft/use of electronic clearing system through a bank account exceeds ₹ 10,000.

> Section 36 (Other deductions): Deduction shall be allowed for any premium paid by any mode of payment other than cash by the assessee as an employer to effect or to keep in force an insurance on the health of his employees under a scheme framed in this behalf by GIC approved by central government or by any other insurer approved by IRDA

> Section 40A(3) and Section 40A(3A) (Expenses or payments not deductible in certain circumstances): Where any payment is made to a person in a day, otherwise than by banking channel or through such other electronic mode as may be prescribed, exceeds 10,000 rupees, no deduction shall be allowed in respect of such expenditure.

> Section 43(1) (Actual Cost of asset): where an assessee incurs any expenditure for acquisition of any asset in respect of which a payment or aggregate payment made to a person in a day, otherwise than by cheque or bank draft or electronic clearing system exceeds ₹ 10,000/-, such payment shall be ignored to determine the actual cost of such asset.

> Section 43CA (Special provision for full value of consideration for transfer of assets other than capital assets): Under this section, sales consideration is deemed to be the stamp duty value on the date of transfer of asset (not being capital assets) being land or building or actual consideration whichever is higher. If the date of agreement for fixing the sales consideration and date of registration of asset are not same, the stamp duty value may be consideration on the date of agreement subject to the condition the transaction has been done through the banking channel.

> Section 44AD (Special provision for computing profits and gains of business on presumptive basis) : Presumptive profit will be deemed at 6% instead of 8% in respect of the amount of total turnover or gross receipts which is received through the banking channel during the previous year or before the due date specified in sub-section (1) of section 139 in respect of that previous year.

> Section 80D (Deduction in respect of health insurance premia): No deduction shall be allowed from gross total income if health insurance premium is paid by the taxpayer in mode of cash.

> Section 80G (Deduction in respect of donations to charitable institutions): No deduction is allowed under Chapter VIA of income tax act from Gross Total Income if Donation paid in cash exceeding ₹2,000.

> Section 80GGA (Donations for scientific research or rural development): No deduction shall be allowed if contribution is paid in cash in excess of Rs.10,000.

> Section 80GGB/80GGC (Donations by companies / any person to political parties): No cash payment allowed as deduction in computation of taxable income

> Section 194N (TDS on cash withdrawal): Banks/ Post office will deduct tax @ 2% on the cash payment to any person on the amount exceeding 1 Cr. during the previous year. Further in case of a recipient who has not filed the returns of income for all of the three assessment years relevant to the three previous years, for which the time limit of file return of income under sub-section (1) of section 139 has expired, tax will be deducted @ 2% on the amount exceeding 20 lac to 1 Cr. and @ 5% thereafter (w.e.f. 1st July 2020).

> Section 269SS (Mode of taking or accepting certain loans, deposits and specified sum): No person shall accept any loan or deposit or *specified sum from any other person otherwise than by banking channel if amount including the outstanding (if any) is 20,000 or more. Contravention of this provision will lead to penalty of a sum equal to the amount of the loan or deposit or specified sum so taken or accepted u/s 271D.

> Section 269T (Mode of repayment of certain loans or deposits.): No person shall repay any loan or deposit or *specified advance including the interest thereon otherwise than banking channel, if the amount of the loan or deposit together with interest is ₹ 20,000 or more. Contravention of this provision will lead to penalty of a sum equal to the amount of the loan or deposit or specified advance so repaid u/s 271E.

*The Finance Act, 2015 amended Section 269SS and Section 269T to include any money in advance (accepted or repaid) in relation to transfer of an immovable property, whether the transfer takes place in order to curb black money circulation.

> Section 269ST: It prohibits receipt of an amount of ₹ 2 lakh or more by a person, in aggregate from a person in a day or in respect of a single transaction or in respect of transactions relating to one event or occasion from a person, otherwise than banking channel. Contravention of this provision will lead to penalty of a sum equal to the amount of such receipt u/s 271DA.

Reporting

There are many instances in respect to which reporting is required for cash transactions.

> Section 139A(5) read with rule 114B mandate the quoting the of permanent account number in certain cash transaction given as follows:-

Nature of transaction Value of transaction
Payment to a hotel or restaurant against a bill or bills at any one time. Payment in cash of an amount exceeding fifty thousand rupees.
Payment in connection with travel to any foreign country or payment for purchase of any foreign currency at any one time. Payment in cash of an amount exceeding fifty thousand rupees.
Deposit with,— Cash deposits,—
(i) banking company or a co-operative bank to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act); exceeding fifty thousand rupees during any one day; or
(ii) Post Office.
Purchase of bank drafts or pay orders or banker’s cheques from a banking company or a co-operative bank to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act). Payment in cash for an amount exceeding fifty thousand rupees during any one day.
Payment for one or more pre-paid payment instruments, as defined in the policy guidelines for issuance and operation of pre-paid payment instruments issued by Reserve Bank of India under section 18 of the Payment and Settlement Systems Act, 2007 (51 of 2007), to a banking company or a co-operative bank to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act) or to any other company or institution. Payment in cash or by way of a bank draft or pay order or banker’s cheque of an amount aggregating to more than fifty thousand rupees in a financial year.

> Further section 285BA read with rules 114E mandate for filling statement of financial transaction (SFT) in respect of certain cash transaction.

Nature and value of transaction Class of person (reporting person)
(a) Payment made in cash for purchase of bank drafts or pay orders or banker’s cheque of an amount aggregating to ten lakh rupees or more in a financial year. A banking company or a co-operative bank to  which  the Banking Regulation Act, 1949 (10 of 1949)  applies  (including any bank or banking institution referred  to  in  section  51  of that Act).
(b) Payments made in cash aggregating to ten lakh rupees or more during the financial year for purchase of pre-paid instruments issued by  Reserve  Bank of  India under  section 18 of the Payment and Settlement Systems Act, 2007 (51 of 2007).
(c) Cash deposits or cash withdrawals (including through bearer’s cheque) aggregating to fifty lakh rupees or more in a financial year, in or from one or more current account of a person.
Cash deposits aggregating to ten lakh rupees or more in a financial year, in one or more accounts (other than a current account and time deposit) of a person. ( i) A banking company or a co-operative bank to which the Banking Regulation Act, 1949 (10 of 1949)  applies  (including any bank or banking institution referred to in section 51 of that Act);
(ii) Post Master General 10 as referred to in clause (j) of section 2 of the Indian Post Office Act, 1898 (6 of 1898).
Payments made by any person of an amount aggregating to— A banking company or a co-operative bank to  which  the Banking Regulation Act, 1949 (10 of 1949)  applies  (including any bank or banking institution referred  to  in  section  51  of that Act) or any other company or  institution  issuing  credit card.
(i) one lakh rupees or more in cash ; or
(ii) ten lakh rupees or more by any other mode, against bills raised in respect of one or more credit cards issued to that person, in a financial year.
Receipt of cash payment  exceeding two  lakh rupees  for  sale, by any person, of goods or services of any nature (other than those specified at Sl. Nos. 1 to 10 of this rule, if any.) Any person who is liable for audit under section 44AB of  the  Act.

Therefore, one needs to be care full while dealing with cash transactions as each default as it may have consequences in the form of huge penalty and allowance of expenses or deduction.

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