Cash Limits And Penalties Under Income Tax Act

Written by KnowYourGST Team under GST

Many people have question about maximum cash they can give or accept without facing any problem under Income Tax Act.

People have lot of doubts on one can accept cash and give cash whether in form of loan, advance, deposit or against a business transaction.

  1. How much cash sales one can do in a day?
  2. How much cash sales one can do with a single person in a day and in a year?
  3. How much cash loan, deposit or advance one can give to different person or a single person?
  4. What are the penalties if cash given or taken in a day from a single person or different person?
  5. How much cash one can receive against a single invoice or different invoice in a day or in a year from a single or different person?

Even if you have these doubts, I will try to answer these doubts in this article.

Lets check the different sections of IT Act which prohibits dealing in cash transactions or limits the value of cash transactions.

  • Section 269ST
  • Section 40A(3)
  • Section 269SS
  • Section 269T

These sections defines the value of cash transactions that are allowed as per income tax act. Remember there is  no constitutional ban on dealing in cash, only thing is income tax department assess cash transactions in different manner putting penalties on cash transaction done.

Cash received more than Rs. 2 lakhs in a year from a single person

Section 269ST prescribes the cash limit that a person can receive against

  • From a single person in one day
  • For a single transaction
  • For transaction related to one principle transaction

This section limits amount of Rs. 2,00,000 that a person can receive. Above are the listed transactions and if a person receives more than 2 lakhs then penalty under section 271DA will be levied.

Penalty for receiving cash amount

Penalty will amount equal to cash received. Suppose you received Rs. 5,00,000 from a single person for a transaction then you will be liable for penalty of Rs. 5 lakhs.

Cash payment in excess of Rs. 10 thousand

Every cash payment in excess of Rs. 10,000 will be disallowed under section 40A(3).

If you pay to someone in excess of Rs. 10,000 then that transaction you can not claim as expense in your Income tax filing.

However if you are not claiming the particular transaction as expense then section 40A(3) is not applicable.

The cash limit for payment to a transporter is Rs. 35,000.

Cash receipt in excess of Rs. 20,000 as a loan or deposit

You cannot receive cash in excess of Rs. 20,000 as any loan or deposit from any person.

Under section 269SS a person should not have any loan/deposit exceeding 20,000 in cash. Penalty under section 271D will be applicable which is equal to cash loan accepted.

Cash payment more than 20,000 as a loan or deposit

You cannot pay to anyone as loan, deposit or advance in cash for amount exceeding Rs. 20,000. Section 269T of income tax act prohibits paying more than 20,000 to any person as loan or deposit.

Penalty will be equal to amount of loan/deposit.

Purchased Fixed assets with cash exceeding Rs. 10,000

As earlier provisions of section 40A(3) covered only revenue expenses, government introduced section 43(1) to prohibit purchase of fixed assets with cash.

As per this section any amount of fixed asset paid in cash exceeding Rs. 10,000 shall not be considered as part of actual cost. This implies that depreciation benefits will not be available if fixed assets are purchased for cash. The limit is set at Rs. 10 thousand.

Conclusion

As a common man or law abiding citizen everyone of us support a corruption free country. How can we contribute to a corruption free country?

As a business owner or as an economic soldier we should try to avoid cash transactions.

Cash is the main source for bribes at lower level of bureaucracy. Government is implementing and making Benami property act, Money laundry act tough and this will control corruption at upper level.

The best we can do is to avoid cash transactions.

Cash economy if has its own benefits, at an overall level it has more disadvantages ranging from blocking of funds flowing in mainstream to escaping from income tax or any other other tax.

Going forward may be another 10-15 years we will witness an era without any currency notes in developed countries. In fact countries such as Singapore, Netherlands have cash circulation only around 40%, India has cash circulation of around 97%.

With technology moving at fast pace, time will change and we Indians have to bring cash circulation down and adept to latest changes.

These provisions to discourage cash transaction makes sense and are inline with demonetisatin step taken by Modi government.

Author
Posted by Pulkit Sharma under Income-Tax

A Chartered Accountant by qualification. I am founder of KnowyourGST.com to provide free resources to enable smooth compliance by Tax Payers. You can use GST Invoicing application developed by m...Contact

4 Comments


Comment by Akash Jain

Sir I want more clarification with regard to 2 Lakh cash receipt......i mean sir you have mention that we cannot accept cash in excess of Rs 200000 from a single person in a year......what if i have one party to whom i supplied goods of Rs 20 Lakh and i gave him 15 Bills all bills are less than 2 lakh and if i received cash against all 15 bills issued by me on different dates even then i will be trapped by this section ???
In 269ST it is mention against single transaction i mean here i m having mutiple transcation with one person sir ????
Please make me more clear with Rs 2 lakh limits with examples


Comment by Pulkit Sharma

There is ambiguity on this particular doubt. If we the section I have mentioned received multiple times relating to a principal transaction.
Your supplying goods worth 20 lakh is a single transaction and issuing invoices are part of the main transaction and in this case section is attracted. You have to understand that intention of government is to wash out cash transactions.


Comment by Akash jain

Ok sir Got it....and what in case of 20,000 receipt against loan is it the aggregate limit for receipt in cash from multiple person or limit against receipt from indivdual...that is if from A if i receive in cash 15000 loan and from B 15000 loan then will the section get attracted or limit is individual wise


Comment by Pulkit Sharma

It is from a single person.


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