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.
Page Contents
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.
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