Handling cash transactions and expenses can be tricky, especially with the numerous rules and limits set by the Income Tax Act. If you’re unsure about how these rules affect you, you’re not alone. Here’s a straightforward guide to help you understand the key provisions related to cash transactions and expenses, and how to stay compliant.
Key Sections and Their Rules
- Section 269T: Restrictions on Loan and Deposit Repayments
Section 269T mandates that any repayment of loans or deposits exceeding ₹20,000 must be made through account payee cheques, bank drafts, or electronic modes. This rule applies to:
- Repayments of loans or deposits repayable after notice or after a period.
- Advances related to the transfer of immovable property.
For repayments involving Primary Agricultural Credit Societies (PACS) or Primary Co-operative Agricultural and Rural Development Banks (PCARDs), the threshold is increased to ₹2 lakhs.
- Section 269SS: Restrictions on Accepting Loans and Deposits
According to Section 269SS, loans or deposits exceeding ₹20,000 must also be received through account payee cheques, bank drafts, or electronic modes. This applies to:
- Any loan or deposit of money.
- Advances related to the transfer of immovable property.
For transactions with PACS or PCARDs, the threshold is raised to ₹2 lakhs.
- Section 269ST: Limits on Receiving Cash
Section 269ST restricts receiving cash of ₹2 lakhs or more in:
- A single transaction.
- Aggregate amounts in a day.
- Transactions related to one event or occasion.
This limit is in place to curb large cash transactions and encourage electronic payments.
- Section 269SU: Electronic Payment Requirements for Businesses
If your business’s turnover exceeds ₹50 crores, Section 269SU requires you to accept payments via specified electronic modes, such as:
- Debit cards (powered by RuPay).
- Unified Payments Interface (UPI) and UPI QR Codes.
However, if your business only deals with other businesses (B2B) and at least 95% of transactions are non-cash, this rule may not apply.
Penalties for Non-Compliance
Not adhering to these rules can result in significant penalties:
- For Section 269T: If you fail to repay a loan or deposit through prescribed methods, you may face penalties.
- For Section 269SS: Taking or accepting loans or deposits in cash instead of prescribed modes can result in a penalty equal to the amount of the loan or deposit.
- For Section 269ST: Receiving cash above the set limits can lead to a penalty equal to the amount received.
- For Section 269SU: Failing to provide the required electronic payment facilities can result in a daily penalty of ₹5,000.
Understanding Electronic Modes
The prescribed electronic modes include:
- Credit Cards
- Debit Cards
- Net Banking
- IMPS (Immediate Payment Service)
- UPI (Unified Payments Interface)
- RTGS (Real-Time Gross Settlement)
- NEFT (National Electronic Funds Transfer)
- BHIM (Bharat Interface for Money) Aadhaar Pay
Special Considerations
- Payments to Banks: Payments made to banks are generally not covered under these rules.
- Book Adjustments: Payments made through book adjustments are not disallowed under these provisions.
- Cash deposit limits
For individuals holding savings accounts, cash deposits totaling Rs 10 lakh or more within a fiscal year must be reported to the tax authorities.
The threshold is higher at Rs 50 lakh for current accounts.
While these deposits are not immediately taxed, financial institutions are mandated to report such transactions to the Income Tax Department for monitoring purposes.
- Cash gifts and fixed Deposits
Cash gifts less than Rs 50,000 in a financial year are exempted from tax. However, gifts received from non-relatives exceeding this limit are taxable.
- Cash withdrawal limits and TDS
For cash withdrawals, Section 194N of the Income Tax Act imposes the following limits and TDS rates:
If total cash withdrawals exceed Rs 1 crore in a financial year, 2 per cent TDS is applicable.
For individuals who have not filed income tax returns for the past three years:
2 per cent TDS on withdrawals over Rs 20 lakh
5 per cent TDS on withdrawals over Rs 1 crore
Certain entities like the government, banks, post offices, and business correspondents are exempt from these TDS provisions
By understanding and following these guidelines, you can avoid penalties and ensure your transactions are compliant with the Income Tax Act.