Important Cash Transaction Limits and Penalties Under Income Tax That You Need to Know About

In India, there are a lot of transactions that go unaccounted for, with people often transacting in cash to avoid the government’s radar. To curtail the black money menace, the government has put several limits that individuals and businesses need to adhere to when they transact in cash. Any person who exceeds these limits could pay steep penalties of up to 100% of the amounts in question. Let’s take a look at these limits in detail.

Under the income tax law, cash transactions over Rs.2 lakh are strictly prohibited. Section 269ST of the Income Tax Act prohibits any person from accepting cash over Rs.2 lakh from a single person and in a single day, or in respect of multiple transactions received from a single person that relates to a single event or occasion. Instead, the same will need to be paid for through cheque, card payments, or a bank transfer.

When it comes to gifts, any person cannot accept a cash gift exceeding Rs.2 lakh from a single donor and on a single occasion. This rule applies to money received from a person’s relatives as well. Those who accept cash over Rs.2 lakh in violation of this clause may face a penalty equivalent to the amount received.

For businesses, any expenditure in cash exceeding Rs.10,000 paid to a single person in a single day is disallowed as an expenditure. However, for transporters, this limit stands at Rs.35,000.

The government has also laid down limits that taxpayers must follow while paying their medical insurance premiums. All medical insurance premiums are to be paid through any mode other than cash, failing which the taxpayer becomes ineligible to claim a deduction under Section 80D.

In the case of loan repayments, a person cannot accept an amount or make a payment/repayment to an entity or individual exceeding Rs.20,000 in cash under Sections 269SS and 269T of the Income Tax Act. This rule applies to debt repayments as well. Even property transactions have an upper limit of Rs.20,000 for cash transactions, including advances. In a violation, the assessing office can levy 100% of the loan or deposit amount as a penalty.

It is to be noted that some of these limits have exceptions depending on the person involved or the situation.

For any clarifications/feedback on the topic, please contact the writer at athena.rebello@cleartax.in

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