Cash Transactions Limit: Income Tax Department can impose up to 100% penalty on cash transactions exceeding the limit, check the limit

 

Income tax on cash transactions: A limit has been set for cash transactions under the Income Tax Act, 1961. This Act also prohibits deductions, allowances, expenses etc. given in cash.

Cash Transactions Limit: The government wants to promote digital transactions. Therefore, rules have been made to prevent payments in cash beyond a certain limit. Many times people are not aware of the rules and end up harming themselves, because violation of rules is punishable with a fine. Remember that the Income Tax Department keeps a close watch on large cash transactions.

How much penalty will be imposed for cash transactions above the limit?

Let us tell you that under the Income Tax Act, 1961, a limit has been set for cash transactions. This Act also prohibits deductions, allowances, expenses etc. given in cash. The Income Tax Department warned that if transactions above a limit are settled through cash, then if caught, the Income Tax Department will impose a fine equal to the amount paid in cash.

It is important to know about the tax rules on cash transactions

Many times people unknowingly make cash transactions beyond the limit and then later have to pay a heavy penalty. Therefore, one should be aware of the rules so that one can avoid making such mistakes.

The Income Tax Department said in a brochure issued on January 2, 2025, “Say “No” to cash transactions.” Many information related to cash transactions have been shared in the brochure. It tells about the limit of cash transactions, the nature of the transaction and who is executing it.

In the brochure, let’s know what rules the Income Tax Department has given regarding cash:

1. Section 269SS: Accepting/taking loans, deposits and specified amounts in cash

No person can accept any loan or deposit or other specified sum in cash if the amount (or aggregate of amounts) is Rs 20,000 or more. Specified sum means taking an advance or any amount in respect of the transfer of immovable property.

This rule does not apply to:

A Government banking company, post office savings bank or co-operative bank (but not all co-operative societies, whether engaged in banking or related activities or not).

A corporation established by a Central, State or Provincial Act.

A Government company falling within section 2(45) of the Companies Act, 2013;

A notified institution, association or body (or class of institutions, associations or bodies).

The above order does not apply even if both the person giving cash and the person taking it are earning agricultural income and neither of them has income taxable under the Income Tax Act, 1961.

Penalty for violation

Violating this rule will attract a penalty of the same amount as the amount taken in cash under section 271D of the Income Tax Act.

2. Section 269 ST: Receiving money in cash

Under section 269ST of the Income Tax Act, a person is prohibited from receiving an amount of Rs 2 lakh or more in cash in a day. This rule applies to everyone, whether the person is a taxpayer or not.

Under this rule, an amount of more than Rs 2 lakh cannot be taken in cash in the following situations:

• Total amount taken from one person in a day: An amount of more than Rs 2 lakh cannot be taken in cash from a single person in a day.
• For a single event or occasion: An amount of more than Rs 2 lakh cannot be taken in cash from a single person for any single event or occasion like marriage, birthday etc.

Who does this rule apply to?

Fees charged by educational institutions and hospitals, donations made by religious institutions and transactions between two related persons or where both the payer and the receiver are exempt from tax.

This rule does not apply to

Government or any banking company, post office savings bank or any co-operative bank (but not all co-operative societies, whether engaged in banking or related activities or not).

Penalty for violation

The Income Tax Department said, “Whoever has taken cash in violation of the above order will be fined under section 271DA for the amount taken in cash.”

3. Section 269T: Repayment of loan or deposit

No person can make payment of Rs 20,000 or more in cash. Government, bank, post office savings bank are exempted from this rule.

Penalty for violation

Under section 271E, the amount paid in cash will have to be paid as a penalty.

Section 269SU: Accepting payment through electronic mode

Those whose annual turnover is more than Rs 50 crore will have to provide the facility of accepting payment through prescribed electronic methods.

Penalty for violation

Under section 271DB, a fine of Rs 5,000 will be imposed for every day for violating the rule. Actually this brochure is a compilation of the provisions related to cash transactions. Through this, the government wants to make people aware of the penalty imposed on cash transactions. The government is trying to make people avoid paying in cash even for small transactions so that digital transactions can be promoted.