This blog will discuss cash transaction issues; How much receipt can be accepted in cash? How much payment can be made in cash? The government discourages cash acceptances or payment and has framed rules in such a manner more and more people use banking channels and digital modes for cash payment and receipt. How much advance or deposit can be taken or paid in cash? What are the limits and provisions in Income Tax relating to these?
It is better to avoid cash transactions; Government discourages cash dealing, encourages online transactions or through cheques, and drafted guidelines on payment and acceptance of cash transactions. What will be the implications of cash acceptance and payment in Income Tax?
Contribution to Political Party ( Sec 80GGB and Sec80GGC of Income Tax Act)
Contributions made to political parties and Electoral trust thru bank transfer can be claimed 100% as a deduction provided not made in cash; cash contribution is not allowed as a deduction.
Section 80GGB deals with the contributions made by a company to a political party as, per the Companies Act, the limit prescribed for political contribution is limited to 7.5% of the average three years net profit of the company.
Section 80GGC deals with the political contribution by an individual to a political party, there is no limit to donation, but it must be thru bank transfers or e-transfers. No deduction will be allowed for cash payments.
Donation received by Political party registered under 29A of Representation Act under Section 13A of Income Tax Act.
Political parties are allowed to collect donations or voluntary contribution, which is 100% exempted, but it must be either thru electoral bonds or an account payee cheque. If political parties receive this in cash, it should be limited to Rs2,000/- per contribution in order to claim an exemption under Income Tax.
Deduction in Specified Business ( Section 35 AD)
Deduction of capital expenditure by specified businesses is allowed under Section 35 AD of the Income Tax Act. Deduction of capital expenditure is allowed 100% before or after the commencement of business, as a heavy investment is involved in specified businesses, so instead of providing depreciation full amount of capital expenditure is allowed as deduction subject to conditions mentioned under the Income Tax Act. Still, no deduction for investment in Land, Goodwill and Financial instruments is permitted. A limit of Rs10,000 is fixed for the cash purchase of any capital Asset any, capital expenditure above Rs10,000 must be through an account payee cheque; if paid through cash, deduction under this section will not be allowed.
Deduction regarding a contribution towards Insurance(Section 36) and Medical Insurance Section 80D).
Payment of premiums under section 36 for insurance 100% allowed subject to conditions and section 80D for medical insurance Rs25,000 for persons other than senior citizens and Rs50,000 for senior citizens is provided, but it must be thru banking or online mode; exemption provided under Section36 and Section 80D of Income Tax Act will not be allowed if the premium is paid in cash.
Provision relating to Saving Bank Account, Current Bank Account and Fixed Deposit
Government is stringent regarding dealing in cash transactions in a year, with fixed guidelines on how much cash is to be deposited and withdrawn, if not followed, you can receive notice from Income Tax Department and a penalty imposed.
In the case of a Saving Account, the limit fixed for the year for making cash transaction deposits or withdrawal is Rs10,00,000, it can be in one saving account or more than one. The amount can be in break up or lump sum, but if cash transaction dealing exceeds Rs10,00,000, then can receive notice from Income Tax Department as per section 148 of the Income Tax Act asking for the sources of income.
The limit in the case of the Current Account is Rs50,00,000, which maybe one Account or more.
In the case of Fixed Deposits limit fixed is Rs10,00,000, but no notice in case of renewal.
Taking or Accepting loans and deposits (Section 269SS)
No person can accept a loan and deposit in cash exceeding Rs20,000. A penalty of 100% of the amount received will be imposed.
Any amount in relation to transfer of immoveable property(token money), even if property is not yet transferred can not be accepted in cash for amount exceeding Rs20,000.
If one accepts a loan or deposits in cash for more than Rs20,000/- e.g. A takes a deposit of Rs30,000/- from B in cash, it can be a single amount of Rs30,000/- or Rs15,000/- in two instalments, the penalty will be 100%, i.e. Rs30,000/- will be imposed on A.
In case A requests from B a loan of Rs50,000/-, B gives the loan in cash in three instalments, Rs10,000/- in April, Rs20,000 in May and Rs20,000/-in October, it will treat as a breach of provision and a penalty of Rs50,000 ( 100% of the amount) will be imposed on A. Overall limit of Rs20,000/-will apply.
Exceptions:-
Sum of money accepted from:-
- Banking Company
- Government under different schemes.
- Post office, Cooperative Banks .
- Person with agricultural income and recipient with an agricultural income.
- Any Corporation, Government Company.
- Central Government institutions specified under the official gazette.
Repayment of Loan, Advance and Deposits Section 269T
Repayment of loan, advance and deposit in cash exceeding R 20,000/- is not allowed; a penalty of 100% of the amount repaid will be imposed. A borrowed Rs30,000/- from B, Rs30,000/- is repaid by A to B in cash either in a single instalment of Rs30,000/- or two or three instalments, then a penalty of Rs30,000/- will be charged to A, as A breaches the guidelines of Income Tax.
Exceptions:-
Amount repaid to:-
- Banking Company
- Government under different schemes.
- Post office, Cooperative Banks .
- Person with agricultural income and recipient with an agricultural income.
- Any Corporation, Government Company.
- Central Government institutions specified under the official gazette.
Cash withdrawal from Private or Public Sector Banks, Post offices, Cooperative Banks.
As per Sector194N of Income Tax Act, TDS has to deducted on cash withdrawal from Private, Public sector banks, post offices, cooperative bank if the limit fixed by Government is crossed.
Incase one has regularly filed Income tax return for last three years then TDS @ 2% will be deducted if cash withdrawal in the year exceeds Rs One Crore.
If no Income tax return is being filed, then the limit of cash withdrawal during the year is Rs20,00,000/-
TDS @ of 2% will be deducted if cash withdrawal is between Twenty Lakh to One Crore; for cash withdrawal of more than one crore, TDS @ 5% will be deducted
Cash Receipt up to Rs2,00,000/- in a single day, single transaction, one event or occasion from a person.( Section 269ST)
No person is allowed to receive in cash an amount of Rs2,00,000/-or more in aggregate from a person in a single day, single transaction, in respect of a transaction relating to one event from a person.
If A, B, and C buy electronic goods from an electronic mart and pays Rs1,00,000/- individually for their cash purchase of Rs1,00,000/-each, it is allowed.
If A buys a TV worth Rs3,00,000/- in cash, it will be disallowed, the provision of more than Rs2,00,000 cash collected for the single transaction and a penalty will be imposed; even if A pays it in instalments in two or three days, then also it is not allowed as payment is made in cash for single transaction. A 100% penalty will be imposed on the seller or the person accepting cash for a transaction exceeding Rs2,00,000.
Suppose a function is organised in a banquet , invoice of Rs4,50,000/- is raised. This amount cannot be paid thru cash, even if three separate invoices ( one for food, one for decoration and one for hall rent) are generated or separate invoices are generated in the name of three separate persons ( A, B,C) and paid by those A,B,C, As the bill is related to one event and more than Rs2,00,000/- so cannot be paid in cash. Penalty of 100% will be imposed on the Banquet i.e.Rs4,50,000/- if receives Rs4,50,000/- in cash.
Exceptions are if received by:-
Government
Govt institutions as notified in their gazettes
Banking company, Cooperative Banks, Post offices etc
Disallowance in respect of Fixed Asset Section 43(1) Capital Expenditure.
The government strictly enforces cash transaction regulation. One can purchase any capital asset to the limit of Rs10,000/- in cash. Capital Asset purchased in cash for more than Rs10,000/- will not be treated as part of the cost, and no depreciation can be claimed on that Asset. e.g., if A purchases an Asset for his business for Rs3,00,000/- in cash, then as per Section 43(1), this amount will not be part of the cost, and no depreciation will be calculated on Rs3,00,000.
Disallowance of expenditure under Section 40(A)3 of Income Tax Act.
Any reimbursement or payment or ( aggregate of payment) for the particular expense to any person on a particular day is made in cash for more than Rs10,000/- then this cash payment will be disallowed, i.e. cannot be part of the cost and profit will increase. e.g. If Rs15,000/- is paid on a particular day to A as travelling expense in cash, then this amount will be disallowed and will not be part of the cost, profit will increase by Rs15,000/-. Any expenditure over Rs10,000 must be done through banking channels or online. The limit for expense in cash is fixed at Rs10,000/-per person per day. It should be paid by account paying cheque, draft or online mode.
If advertisement bill is of Rs 40000/-, payment made Rs 15000/- by online mode and Rs 35000/- by cash then only Rs 35000/- will be disallowed.
Bearer cheque and crossed cheque will be treated equivalent to cash.
Regarding hiring, leasing goods and plying, this cash limit is Rs35,000/-per person per day. Any expenditure over Rs35,000 must be done through account paying cheque, draft or online mode.
Exceptions of 40(A)3 provision under Rule 6DD
Deemed Income of Subsequent Year in which payment is made
This provision applies to business and profession; cash expense is limited toRs10,000 for one person in a day. On 31st March of the financial year provision of Rs25,000/- was made towards travelling expense and claimed as an expense in the profit & loss account; subsequent year provision of Rs25,000/- was settled in cash, this amount of Rs25,000 will be regarded as deemed income in next financial year as cash payment was made for Rs25,000/-, cash limit of Rs10,000 crossed and was claimed as expense in last year.
Presumptive Taxation Section 44AD of Income Tax Act
This section is for small taxpayers whose turnover is up to Rs2 crores, limit will be 3 crores provided aggregate amount received during the year in cash does not exceed 5% of total gross receipts/ turnover.
Similarly for profession 44ADA turnover is Rs50 lakh, limit will be Rs75lakh provided aggregate amount received during the year in cash does not exceed 5% of total gross receipts/ turnover. This is the advantage of doing business on other than cash mode. Profit computation 50% of receipts.
No need to maintain books of account, no audit is required subject to conditions.
If one accepts receipts in cash and other mode have to show a mandatory presumptive profit of 8% on Turnover,
If receipts are accepted through banking mode only, they have to show a mandatory presumptive profit of 6% on Turnover.
Contribution to Fund, Donations Section 80G
80G briefs us regarding donations and exemptions available to the contributor if guidelines mentioned in the section are followed. Cash donation to a political party or Registered Tr does not exceedust will be allowed only up to Rs2,000/- if cash donation exceeds Rs2,000/- no deduction will be allowed under section 80G. If payment is made online or through banking channels, deductions will be provided as per the limit prescribed in Section 80G.
Contribution towards Scientific Research and Rural Development Section 80 GGA
Cash donation under 80 GGA is allowed up to Rs10,00; if the amount exceeds that, no deduction will be allowed.