Some of the important provisions contained in Income Tax Act, 1961 with respect to cash transactions are being briefly discussed hereinafter:

Exceeding Limit of Rs. 10,000/- for business expenses in cash may lead to dis-allowance

Provisions with respect to dis-allowance of cash expenses beyond a certain limit contained in section 40A(3) has been in the statute for quite some time. The limit beyond which cash payment of expenses would result in dis-allowance was reduced to ₹ 10,000 by w.e.f.01/04/2018. As a result, as of now, any business incurring cash expense exceeding ₹ 10,000 in cash would attract the dis-allowance of the said expense by the tax authorities. Although it does result in inconvenience with respect to payment of some petty expenses but by and large most of the businesses have fallen in line and make sure that the cash payment is not made beyond the specified sum of ₹ 10,000.

Loan transactions

Restrictions on acceptance and repayment of loans and deposits exceeding ₹ 20,000 has been there in the statute for decades. In accordance with the said provision any person can accept a cash loan or repay a cash loan only in case where the total loan received or the total loan outstanding as the case may be does not exceed ₹ 20,000. In other words, in case a person has already advanced a loan of ₹ 1 lakh, no amount can be further accepted from such person in cash. Similarly, if the total sum outstanding to any person is more than ₹ 20,000 no amount can be repaid to him in cash and the entire amount needs to be repaid through proper banking channels. Any non-compliance of this provision attracts penalty of the equivalent amount. In other words in case a sum of ₹ 5 lakhs is accepted or repaid in cash the person would become liable to penalty equivalent to ₹ 5 lakhs. And in case he happens to do both that means he accepts in cash 5 lakhs and also repays the said amount in cash he would land up paying a penalty of ₹ 10 lakhs for non-compliance of acceptance as well as repayment provision. The aforesaid restriction w.r.t. acceptance or repayment of cash contained in section 269SS & 269T applies not just to business entities but to all persons irrespective of the fact whether they are carrying any business activity or not.

Sale of Immovable property

In accordance with the Income Tax Law no person can accept cash exceeding ₹ 20,000 against sale of an immovable property. This restriction applies not just on the advance received but on the consideration which may have been disclosed in the sale deed as well. Any non-compliance here would also attract an equivalent amount of penalty irrespective of the fact whether ultimately the property is transferred or not. The penal provision with respect to acceptance of cash against sale of any immovable property applies to every person even if he’s not carrying on any business activity. That means even a retired or an aged senior citizen not having any taxable income or otherwise selling an immovable property would be covered by the aforesaid provision and acceptance of cash in excess of ₹ 20,000 would result in penalty amounting to the cash received against sale of immovable property.

All expenses: whether consumer goods or luxury items

In addition to the aforesaid there is also a restriction contained in section 269 ST with respect to acceptance of cash exceeding ₹2 lacs from a person in a day or in respect of a single transaction or in respect of transaction relating to one event or occasion from a person. The objective of this new provision which was introduced in the Income Tax Act with effect from 1^st of April, 2017 was to ensure that the payments being made by any person even if he’s not carrying on a business exceeding ₹ 2 lakhs are through proper banking channels. This provision in a way curbs the practice of purchase of jewellery or any other expensive goods or incurring of expenses in connection with marriages, medical treatment, construction of property, etc. in cash.

The restriction w.r.t receiving cash of Rs. 2 Lacs or more from a person in a day would apply to a gift from even a member of the family. Here again the provision would be applicable even if the donor and the recipient are not carrying out any business activity.

Conclusion:

1. Please make sure not to receive advance or sale consideration against sale of immovable property
2. Do not accept or repay loans or deposits in cash.
3. Make sure to pay for all business expenses through proper banking channels.
4. Do not accept Rs. 2.00 Lacs or more in cash from any person in a day for any purpose including gift from family.
5. Do not accept Rs. 2.00 Lacs  or more in cash agsinst a single transaction or in respect of transaction relating to one event or occasion from a person.
6. Always ensure that the cash available whether while carrying on business or otherwise duly accounted for including the source of the same as well.
7. For your information: 

• Unaccounted cash is liable to be seized by various government agencies including Income Tax.
• Huge penalties & consequences for carrying out cash transaction like property payments, loans, etc.
• In most of the cases total tax & consequential liability against unaccounted cash would exceed the quantum of cash.

Let receiving and giving of cash not pinch your pocket more than it’s worth

In addition to the aforesaid provisions there are a number of other sections which prohibit acceptance or payment of cash by business entities as well as non-business entities. In general it would be a good policy to adapt payment modes other than cash for transactions entered into by any person to ensure not landing up with a huge penalties by the Income Tax Department. Whether these restrictions have resulted in curbing the unaccounted transactions is anybody’s guess but as a law-abiding citizen it should be once endeavour to be compliant at all times and not land up paying huge consequential penalties.