Beware of cash transactions under Income Tax

Cash transactions have long been a subject of scrutiny by the Indian Income Tax Department due to their potential for tax evasion and unaccounted money circulation. It is important for taxpayers to know these limits in order to make sure their expenditure does not get disallowed under the Income Tax Act.

Sec. 40A(3): Cash expenses made to a single person in a day if the amount exceeds Rs. 10,000/-. In the case of Cash Expenses for plying, hiring, or leasing goods carriages, the limit is Rs. 35,000/- per day. Exceptions to this section are provided in Rule 6DD. If an expense is made above limits, it will be disallowed.

Sec 43(1): Expenditure for acquisition of any asset if exceeds Rs. 10,000 in a day to a single person. Such sum will not be included in actual cost and hence no depreciation can be claimed.

Sec. 80D: No deduction in respect of Health insurance Premium if payment is made in cash. Sec.

80G: No Deduction in respect of donation to charitable trust if cash donation exceeds Rs. 2,000/-

Sec 269SS: Loans or Deposits or transactions in an immovable property shall not be accepted in cash if the amount in the aggregate including the unpaid amount if any exceeds Rs. 20,000. If contravened 100% penalty as per Sec. 271D.

Sec 269T: Loans or Deposits or transactions in an immovable property shall not be repaid in cash if the amount in aggregate along with interest exceeds Rs. 20,000. If contravened 100% penalty as per Sec. 271E.

Sec 269ST: A Sum exceeding Rs. 2,00,000 shall not be accepted from a person in a single day or in respect of a single transaction or event. If contravened 100% penalty as per Sec. 271DA.

Sec 194N: TDS @2% will be applicable on Cash Withdrawal exceeding Rs. 1 Crore. However if ITR is not filed for 3 preceding years, the limit comes down to Rs. 20 Lakhs for TDS @ 2% & TDS @ 5% is applicable if the amount exceeds Rs. 1 Crore.

Sec 44AB(a): The threshold limit for the audit of Accounts increases to Rs. 10 Crore if cash transactions do not exceed 5%. If transactions exceed the limit, a person becomes liable for audit u/s 44AB.

Presumptive Taxation: The limit for opting for presumptive taxation will increase from Rs. 2 Crore to Rs. 3 Crore for businesses & and from Rs. 50 Lakhs to Rs. 75 Lakhs for professionals if cash transactions do not exceed 5% from Assessment Year 2024-25.

In conclusion, while cash transactions are not illegal in India, they are subject to stringent regulations and monitoring by the income tax authorities. To avoid legal issues, it is essential to stay informed about the latest rules, maintain proper records, and consider transitioning towards digital payment methods for more transparent and hassle-free financial transactions.

J D Shah Associates, founded in 1988 by CA Jayesh Shah, is a leading chartered accountancy firm located in Borivali, Mumbai. Our team consists of distinguished chartered accountants, corporate financial advisors, and tax consultants.