Counting cash and constraints and tracing the taxman’s tightening ties on taxation. Are you tired
of navigating the complex maze of cash transactions and their impact on your income tax?
When cash payments breach the prescribed limits, bells start ringing at the tax office. These transactions are often like a taxman's wake-up call, a cash caper too bold to forestall!
Welcome back, savvy taxpayers of the JJ Tax community! Let’s dive straight into the
topic
Here are the cash payment limits in India that you should be aware of:
Cash payment limits in India that you should be aware of:
Section 40A (3):
As outlined in Section 40A (3) of the Income Tax Act, any expenditure surpassing ₹10,000 in a day and settled in cash will not be permissible. In practical terms, this implies that if a business makes a cash payment exceeding ₹10,000, this expense cannot be considered a deduction when calculating the taxable income of the business.
Rule 6DD:
Specific exemptions to the provision in Section 40A (3) of the Income Tax Act are present. These exemptions are enumerated in Rule 6DD and encompass scenarios where cash payments beyond ₹10,000 are admissible as deductions during the computation of a business's taxable income.
Section 269ST:
Enforced by Section 269ST of the Income Tax Act, any cash dealings surpassing ₹2 lakh are outright forbidden. This signifies that an individual is prohibited from receiving cash amounts over ₹2 lakh from a sole party within a single day, or concerning multiple transactions from a single party that pertain to a solitary event or occasion.
The following cases should also be kept in mind-
Purchase of capital asset in cash: If any person incurs any expenditure for the acquisition of any capital asset in respect of which payment of aggregate of payments made to a person in cash in a day exceeds Rs. 10,000, then such expenditure is not included for the purposes of determination of actual cost of the asset. This means that no depreciation benefit shall be allowed on such capital expenditure incurred in cash.
Donations: Donations made to a registered trust or political party are not allowed as a deduction under section 80G if the total amount donated in cash exceeds Rs. 2000. Breaching these thresholds may result in severe penalties, potentially amounting to 100% of the implicated sums.
Exceptions to the rules
In a world where cash is (considered) King, some special cases let you pay in cash when it's more than INR 10,000, such as:
1. Payments to:
● Reserve Bank of India (RBI) or any other bank
● State Bank of India (SBI) and its subsidiaries
● Co-operative banks or Land mortgage banks
● Life Insurance Corporation of India (LIC)
● Primary agricultural societies or Primary credit societies
2. Payments that are mandated to be in cash according to specified rules made to the government.
3. Payments made using specific methods:
● Letter of credit (LC) issued by a bank
● Mail or telegraphic transfer originated through a bank
● Bills of exchange payable to the bank only
● Electronic clearing system through bank account
● Payment via credit/debit card.
4. Adjustments in books of account offsetting liabilities for goods or services.
5. Payments for products from non-electric cottage industries.
6. Payments to individuals in areas without banking facilities:
● Carrying on business or residing in such places.
7. Payments by an assessee to salary when an employee is temporarily posted away:
● 15 days or more outside the usual workplace.
● No active bank account at the posting location.
8. Payments on banking holidays.
9. Payments by an assessee to an agent who procures goods or services on their behalf.
10. Payments by an assessee for traveler's cheques or foreign currency only to authorized money changers.
Important Reminders for Dealing with Cash Transactions
The world of cash transactions is governed by certain rules to ensure transparency and prevent evasion. The Income Tax Act and Income Tax Rules lay down these limits, with additional insights provided by Circulars from the Central Board of Direct Taxes (CBDT).
Cash Transactions Involving Assets:
Indian citizens must be cautious when engaging in cash transactions exceeding Rs. 30 lakh for buying or selling assets, as these may trigger scrutiny by the income tax department.
Family-Related Cash Transactions:
When dealing with cash sums of around Rs. 2 lakh received from relatives in a day, ensure that these transactions are routed through banks in line with Income Tax regulations.
Cash Flow Limitations:
In most cases, individuals cannot receive Rs. 2,00,000 or more in aggregate from a single person in a day or a single transaction. However, certain exceptions apply to government entities, banks, post-office savings banks, and cooperative banks. Specific transactions detailed in Section 269SS are also exempted, but Section 271DA of the Income Tax Act enforces penalties equal to the received amount.
Documented Home Cash Holdings:
To avoid penalties like unaccounted money seizure by income tax officials, with fines reaching up to 100% of the sum and interest on unpaid taxes, it's crucial to maintain records of cash stored at home.
Cash Restrictions for Loans, Deposits, and Property:
Cash transactions of Rs. 20,000 or more are restricted for loans, deposits, and in case of transfer of any immovable property. Deposits or withdrawals exceeding Rs. 50,000 require PAN details, while those depositing Rs. 20 lakhs in cash annually must also provide Aadhaar information.
Card Transactions and Digitalization:
Payments exceeding Rs. 1 lakh using credit or debit cards may be reviewed by the department. Post demonetization, the Government and the Income Tax Department advocate for bank transfers over cash, promoting methods like BHIM-UPI, net banking, and e-RUPI to enhance traceability and reduce counterfeiting risks.
Bottom Line
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