Cash transactions seldom leave any trail and has always been a facilitator of black money. Whereas, electronic transactions ensure a clear money trail and make it very difficult for tax evaders. Government, in this regard, has from time to time bought in various provisions in order to restrict/discourage cash transactions and incentivise/ promote non-cash mode.

We have tried to bring in all such provisions of the Income Tax Act, 1961 related to cash transaction at one place. Provisions are categorized based on the nature of the transactions and are given in simplified and summarized form.

1. Mode of Non-Cash Payment/Receipt

Mode of non-cash payment/receipt has been prescribed in various sections. For many of the sections, prescribed modes of payment are similar and are tabulated below:

Sections (wherein modes of payment are similar) Modes of Payment/Receipt
13A – Donation receipt by Political Parties

35AD – Investment Linked Deduction on CAPEX

40A (3)/(3A) – Business Expenditure

43 (1) – Actual Cost of Asset

44AD – Presumptive taxation scheme

50C/43CA/56(2)(x) – Full Value of consideration for transfer of Land and/or Building in certain cases

80JJAA – Deduction for additional employment

269T – Repayment of Loan/ Deposit/ ’Specified Advance’

269SS – Acceptance of Loan/ Deposit/ ‘Specified Sum’

269ST – Receipt of Money more than Rs. 2 lakhs

Account Payee Cheque

Account Payee Bank Draft

Electronic clearing system through a Bank Account

Other electronic mode as prescribed under rule 6ABBA (effective from 29/01/2020)

Credit Card;

Debit Card;

Net Banking;

IMPS (Immediate Payment Service);

UPI (Unified Payment Interface);

RTGS (Real Time Gross Settlement);

NEFT (National Electronic Funds Transfer); and

BHIM (Bharat Interface for Money) Aadhar Pay;

Note: The above modes of payment will be referred as “prescribed mode” hereafter in this article. Wherever payment mode is different, will be mentioned specifically.

2. Incentives to encourage cashless business transaction

Section Section relates to Receipt/ Payment Payment Mode Brief
Section 44AD Presumptive taxation scheme Receipt Prescribed Mode Section provides that eligible assessee (Individual, HUF & Firms except LLP) engaged in an eligible business can opt for presumptive taxation scheme by declaring profit at the rate of 8% or more of the total turnover/gross receipt.

For receipt from the prescribed payment mode, lower presumptive profit rate of 6% (instead of 8%) is prescribed.

Section 44AB Tax Audit Receipt & Payment (both) Any Non-Cash Mode For assessee having cash receipts and cash payments not exceeding 5% of the total receipts and total payments respectively:

tax audit limit of ‘turnover/sales/gross receipt’ has been extended to Rs. 5 crores instead of existing limit of Rs. 1 crore.

(amended by Finance Act, 2020)

3. Restrictions on Expenditure (Capital & Revenue)

Section Section relates to Receipt/

Payment

Payment Mode Brief
40A(3) & 40A(3A) Business Expenditure Payment Prescribed Mode Deduction not allowed for expenses in respect of which payment (other than the prescribed mode) made to a person exceeds Rs. 10,000 in a day. (Rs. 35,000 in case of goods carriage).

Limit also applies to expenditure already claimed in any previous year, payment of which is made in the current year (shall be deemed to be profit in the current year)

43(1) Actual Cost of Asset Payment Prescribed Mode Any amount incurred for the asset, in respect of which payment (other than the prescribed mode) made to a person exceeds Rs. 10,000 in a day, shall not form part of actual Cost of Asset.  Consequently, depreciation cannot be claimed.
35AD Investment Linked Deduction on CAPEX Payment Prescribed Mode Provides for investment linked deduction on CAPEX incurred for specified business.

Deduction shall not be allowed in respect of which payment (other than the prescribed mode) made to a person exceeds Rs. 10,000 in a day.

4. Restrictions on Loan, Deposits & Advances

Section Section relates to Receipt/

Payment

Payment Mode Brief
269SS Acceptance of Loan/ Deposit/ ‘Specified Sum’ Receipt Prescribed Mode Prohibits acceptance of loan/ deposit/ ‘specified sum in relation to transfer of immovable property’ of Rs. 20,000 or more in any other mode. Limit of Rs. 20,000 is aggregate of existing outstanding loan, etc and proposed amount of loan, etc.

Penalty : Section 271D – Equivalent to the amount of loan, etc.

269T Repayment of Loan/ Deposit/ ’Specified Advance’ Payment Prescribed Mode Prohibits repayment of loan/ deposit/ ‘specified advance in relation to transfer of immovable property’ of Rs. 20,000 or more in any other mode. Limit of Rs. 20,000 is aggregate of existing outstanding loan, etc and proposed amount of loan, etc (along with interest).

Penalty : Section 271E – Equivalent to the amount of loan, etc.

69D Borrowing/Repayment on Hundi Receipt & Payment Acc. payee cheque Prohibits any amount borrowed/repayed on Hundi, otherwise than account payee cheque.

Penalty : Amount shall be deemed as income.

5. Property Deals

Section Section relates to Receipt/

Payment

Payment Mode Brief
50C/ 43CA Full Value of consideration for transfer of Land and/or Building Receipt Prescribed Mode Both the sections provides that stamp duty value shall be deemed to be full value of consideration, if actual consideration is lower.

Further provides that, stamp duty value on the date of agreement to sale (ATS) may be taken (if registration date is different), provided payment or part thereof is received in prescribed mode on or before the date of ATS.

56(2)(x) Deemed gift in the hands of buyer Payment Prescribed Mode Contains similar provision, as above, to tax deemed gift in the hands of buyer where consideration paid is lower than stamp duty value.

Note:

1. Also, kindly refer Section 269SS & 269T, as given in point 4 above.

2. RERA – Real Estate (Regulation & Development) Act, 2016, requires that NO payment should be made in cash.

6. Income Tax Deductions

Section Section relates to Receipt/

Payment

Payment Mode Brief
80D Health Insurance Premium Payment Any Non-Cash Mode Deduction allowed only if payment is made by any mode other than cash.
80G Donation to Trust Payment Any Non-Cash Mode No deduction allowed, if donation paid in cash exceeds Rs.2000.
80GGA Donation to Scientific Research, etc Payment Any Non-Cash Mode No deduction allowed, if donation paid in cash exceeds Rs.2000. (amended by Finance Act 2020, earlier limit was Rs. 10,000)
80GGB80GGC Donation to Political Parties Payment Any Non-Cash Mode No deduction allowed in respect of any sum contributed by way of cash.
80JJAA Deduction for additional employment Payment Prescribed mode Section provides for deduction of 30% of additional employee cost for three years, if payment are made in prescribed mode.

Note: This deduction will continue even in case of those assessees who are opting for lower tax U/s 115BAA & Sec 115BAB.

7. Other Receipt/Payment

Section Section relates to Receipt/

Payment

Payment Mode Brief
269ST Mode of undertaking transactions Receipt Prescribed Mode Prohibits receipt of Rs. 2 lakhs or more:

i) in aggregate from a person in a day

ii) in respect of single transaction

iii) in respect of transactions relating to one event or occasion from a person.

Penalty : Section 271DA – Equivalent to the amount of receipt.

269SU Facility for accepting payment Receipt Non-Cash Mode If turnover/sales/gross receipt exceeds Rs. 50 crores in preceding PY, provide facility for accepting payment in electronic mode prescribed in Rule 119AA. CBTD clarified that provision is not applicable to person having only B2B transactions and 95% receipt are from non-cash mode. (Circular dt. 20.05.20)

Penalty : Section 271DB – Rs. 5,000 per day.

13A Exemption of Income for Political Parties Receipt Prescribed Mode plus electronic bond Condition for exemption includes that, no donation of Rs. 2,000 or more is received otherwise than the prescribed mode/electronic bond.

Further, as per Companies Act, 2023, companies are not allowed to make any contribution other than the prescribed mode/electronic bond.

8. Deposits and Withdrawals from Bank/Post Office

Section Section relates to Cash Deposit/ Withdrawal Brief
139(1) Filing of Return (ITR) Cash Deposit Sections provides that person who is otherwise exempt from furnishing ITR, will be required to file ITR if such person has deposited aggregate amount exceeding Rs. 1 crore in one or more current account.
194N TDS on cash withdrawal Cash Withdrawal Section provides for deduction of TDS @ 2%, if the cash withdrawal from any account exceeds Rs. 1 crore in aggregate during the year. TDS is to be deducted on the sum exceeding Rs. 1 crore.

If the person has not filed ITR for last three years, limit of TDS is:

i) 2% on sum exceeding Rs. 20 lakhs;

ii) 5% on sum exceeding Rs. 1 crore

(amended by Finance Act, 2020)

We hope the above article was informative and useful to the reader. Professional in practice may use it as ready reckoner for any cash dealing. Every effort were made to avoid errors or omissions in this article. In spite of this, errors may creep in. We would be grateful, if you bring to the notice of the author of any such error and share your feedback and suggestions please.

Disclaimer: This article is solely for educational purpose and cannot be construed as legal opinion. It is based on the interpretation of the author and are not binding on any tax authority. Author is not responsible for any loss occurred to any person acting or refraining from acting as a result of any material in this article.

Author Bio

Qualification: CA in Job / Business
Company: Working with Public Sector Company in Petroleum Sector
Location: Golaghat, Assam, IN
Member Since: 13 Mar 2020 | Total Posts: 2
I am a Chartered Accountant working with a public sector company in petroleum industry. I have qualified my CA Final in the year 2009 with 44th All India Rank. View Full Profile

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