In an attempt to curb black money and run the government’s welfare programs smoothly, FM Arun Jaitley in his budget speech announced some restrictions on cash transactions up to a certain limit.

As the new financial year is about to begin, there are various things that you need to take care of while dealing in cash.

Here is the brief on amendments relating to cash transactions which will take effect from 1st April 2017.

♦ Restrictions on cash transactions above Rs. 3,00,000/-

From 1st April onward any transaction (including transactions for capital assets) above Rs. 3,00,000/- shall be strictly done only through banking channels.

The penalty for transaction above Rs. 3,00,000/- is equivalent to amount of transaction.

For Eg. – If you sell your car for Rs. 5,00,000/- and take the whole amount in cash. Penalty of Rs. 5,00,000 will be levied.

Note that penalty is imposed on receiver of cash.

Further update on 23.03.2017 :- Finance Bill 2017 as approved by Lok Sabha on 23.03.2017 has reduced the limit of Rs. 3 Lakh to Rs. 2 Lakh.

♦  Restriction on cash donations to charitable trusts.

Deduction at the rate of 50% is granted in case donation is made to a registered charitable or religious trust.

From 1st April, any donation above Rs. 2,000/- in cash will not be eligible for tax deduction under Sec 80G of the income tax act. Earlier this limit was of Rs. 20,000/-

Hence, if you want to make any donations and take income tax benefit of the same you have to ensure that you make such donations through banking channels

♦ Restriction on cash expenses above Rs. 10,000/-

Any expense of above Rs. 10,000/- done in cash will be disallowed. Earlier, this limit was of Rs. 20,000/-.

♦ Restriction on Capital Expenditure done in cash

From 1st April onwards, Cash payments of above Rs. 10,000/- done for purchase of capital asset will be disallowed. I.e. they cannot be added in the cost of asset for Income Tax purposes hence, depreciation cannot be claimed on same.

You will have to ensure that payment for purchase of any capital asset of more than Rs. 10,000/- shall be done only through banking channels.

♦ Cash Books during assessment-

Further, considering the fact that government wants to discourage cash transactions it is likely that cash transactions will be looked upon in detail.

Hence, one is expected to maintain proper cash books.

Please note that all above changes will come into effect from the dates mentioned above after Assent of Finance bill 2017 by Honorable President of India and till that time these are proposed amendments.

(Author can be reached at Jigar.shah@skrathi.com)

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17 responses to “Restriction on Cash Transactions as applicable from 1st April 2017”

  1. Ch.annaji says:

    Sir, iam a distributor. Some retailers purchase the stock monthly 15 to 20 times. Total purchase in a year 5 to 6lakhs lakhs. In this case we receive total amount takes cash or cheques?

  2. Mrs. Swati Sandeep Athalye says:

    sir,

    In our hotel we are giving payments via cash
    can it be valid or we have to make the payment through cash?

  3. ravi gupta says:

    what are the rules for cash payment for transportation of goods after 1/4/2017

  4. Mohammed Asif Ghadai says:

    Q.1. Does this mean that receiver has to maintain records that from whom they got cash?
    Q.2. How will the authorities be able to track these cash transactions?
    Q.3. Even if I show withdrawals from my bank account, is this limit per bank account or per person?

    Please reply to all these questions in order.

    • CA Jigar Shah says:

      1) Yes the receiver is always expected to do so even before this provisions came in.
      2) Let us the one from whom you received the payment is under scrutiny and he has withdrawn large sums from bank to pay you in cash. When the officer asks him why did you withdraw cash and he gives your name , there will be notice at your home aswell.
      Further, government collects a lot of data from many resources and analysis them to nail down illegal transactions.
      3) Withdrawals from bank account has nothing to do with this provisions

  5. Bhadkamkar A V says:

    Does this mean advance against salaries can be paid in cash upto Rs.10000/- only? (We were paying in cash upto Rs.20000/- hitherto.)

  6. Arun Drolia says:

    Sir. I has coal business. I purchased from coal india subssiadry company. Can i paid inward transportation charge like freight. No truck owner is ready to receive payment through cheque. Plz – See more at: http://taxguru.in/income-tax/restriction-cash-transactions-applicable-1st-april-2017.html#comment-1950906

  7. Arun Drolia says:

    Sir. My has coal business. I purchased from coal india subssiadry company. Can i paid inward transportation charge like freight. No truck owner is ready to receive payment through cheque. Plz

  8. Manish Shah says:

    Dear sir

    Any transaction – including Capital transaction – not to be in cash more than 300000/-
    Does it confusing to restrict expenses more than 10000/-?

    • Jigar Shah says:

      Restriction of Rs. 3,00,000/- is for all kind of transactions and the penalty is on the one who receives the payment.

      So, the transaction will be disallowed in the books of payer and at the same time there will be penalty on receiver.

    • Jigar Shah says:

      Hi Manish,

      The penalty in case where transaction value is more than Rs. 3,00,000/- is on the receiver and is also applicable for non business transaction.

      If a capital asset is purchased for more than Rs. 3,00,000 in cash than the purchaser will not get depreciation on it and at the same time seller will also have to pay penalty

  9. Jigar Shah says:

    @Dinesh Thakker, it is related to all businesses irrespective of the fact whether accounts are under audit or not

  10. kumar ramani says:

    It is very disgusting decision, it should not be very harsh in the beginning, must take soft decision to certain period

  11. dinesh thakker says:

    Weather it’s related to all business or only which account dare audited u/s income tax act?

  12. manoj says:

    the penalty is for entire amount not for amount above Rs. 3lacs.
    hence in the example penalty will be of Rs. 5lacs.

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