The Income tax laws have various restrictions on payment in cash and receipt of money in cash. Some restrictions apply to those engaged in business or profession and some restrictions apply to all. It is important for all of us to understand these restrictions Restrictions on Cash Transactions under Income Tax Laws so as to avoid the penal consequences.

Restrictions on those carrying on business or profession

If you are carrying on business or profession, the tax laws have a daily cap of Rs. 10,000/- beyond which payments in cash cannot be made for any expenditure to a single person. If you fail to do so, the expenses paid in cash will not be eligible for tax deduction. There is one exception to this rule and you can pay upto Rs. 35,000/ to a transporter in a day without attracting the disallowance.

Likewise in case you pay any amount beyond Rs. 10,000/- for acquiring any asset, such payment is not allowed to be added to the cost of the asset for the purpose of claiming depreciation.

Cash Transactions

Restrictions on acceptance and repayment of loan

The tax laws have provisions under which you are not allowed to accept or repay any loan beyond the initial limit of Rs. 20,000/-. Though it does not have any impact on your tax liability but in case of default, the tax officer can levy a penalty equal to the amount of loan accepted or repaid. This threshold is not applicable for each of the transaction of a loan but will apply to every transaction irrespective of the value, once the outstanding amount of loan exceeds Rs. 20,000/- including the payment being made. Likewise repayment of even a single rupee cannot be made in cash if the balance in the loan account is more than 20,000/ at the time of repayment. The acceptance or repayment can be made as long as the balance in the loan account does not exceed twenty thousand rupees.

The restrictions in respect of loan are not applicable for transactions with bank, government, Government Company or corporation and other entities if specified by the government. Your home loan will not get covered under these restrictions and you can repay your home loan in cash beyond twenty thousand rupees.

Restrictions in respect of certain deductions available from your income

In respect of certain payments for which you are eligible to claim deduction from your taxable income, the tax laws have some ceiling for making payment in cash. Deduction under Section 80D is not admissible if the premium for the health insurance is paid in cash. However payment for preventive health check, for which there is a sub limit of Rs. 5,000/- under Section 80D, can be made in cash. The restrictions of cash payment will also apply in case of deduction for medical expenses for a senior citizen who does not have health insurance.

Likewise deductions for certain donations under Section 80G cannot be claimed if donation beyond Rs. 2,000/- is made in cash.  The restriction of Rs. 2,000/- is applicable for each donation and not for all donations in aggregate.

Blanket restrictions on acceptance of money beyond two lakhs

The tax laws have one more all pervasive restrictions under Section 269ST whereby a blanket restriction has been placed on receipt of money by any person for an amount of two lakhs and above. This restriction is applicable to the recipient and not the payer. The restriction is applicable in respect of receipt of money for each occasion or for each transaction and not necessarily for payment in a single day.  This provision has been brought in to curb use of black money on various occasions like marriage, travel etc. and for which no deduction is claimed by the payer under the tax laws. For example a caterer cannot accept two lakhs and more in aggregate for marriage reception form one person whether on a single day or over the period. Likewise though there is no restrictions on receiving payment for sale of anything like gold jewellery, house or a plot of land etc. in general but if the value of single transaction is more than two lakhs, the seller cannot receive more than two lakhs either in full or in  part for such transactions. Likewise you cannot receive any gift beyond two lakhs in cash even in cases where the gifts are not treated as your income such as gifts received at the time of your marriage or from specified relatives. In case you receive payment in contravention of the above provision,  the income tax officer can levy a penalty equal to the amount of money received. Please note that there are no penal consequences for the person who is paying such money.  The restriction of Rs. 10,000/- as discussed above is applicable if one wishes to claim the same as business expenditure.

I am sure the above discussion will help to be careful while making or receiving payments in cash.

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The author is Chief Editor ApnaPaisa and can be reached on jainbalwant@gmail.com.

Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.

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9 Comments

    1. Balwant Jain says:

      The restriction of two lakhs is with respect to each transaction. Each Sale invoice constitutes a distinct transaction so you can accept below 2 lakhs for each sale bill in cash.
      Please note the payer will face dis allowance if he intends to claim it as business expenditure or capital expenditure

  1. Amrutlal Kotadia says:

    Acredit co-op society registerd under state co-op act. can accept deposit more than rs. 20000 from customer in saving account of customer ?

  2. SANGHARSH PAWAR says:

    For example a caterer cannot accept two lakhs and more in aggregate for marriage reception from one person whether on a single day or over the period.
    Can same caterer accept less than two lakhs from different person for same marriage reception (say 6 Lakhs ) ?

    1. Balwant Jain says:

      Yes. The restriction is with respect to one person and not for all the persons in respect of one even or transactions. So for one event the caterer can receive upto two lakhs from more than one person.

      1. SHARAD says:

        Dear Sir,
        In my opinion, the caterer can not take more than 2 lakhs for Single marriage from a different person as section 269ST clearly denies acceptance of money against a single event and marriage is a single event.
        (c) in respect of transactions relating to one event or occasion from a person- for reference.

        1. Balwant jain says:

          The answer is itself in your answer. This contains “from a person” implying from a single person otherwise the legislature would have used the word “from one or more persons”.
          Hope it stands answered.

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