Cash Transaction limit under Income Tax Act, 1961 & GST

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Cash Transaction limit under Income Tax Act 1961

Cash transactions have always played a significant role in the Indian economy and are a consistent source of black money accumulation. The government has recently implemented a number of measures to reduce cash transactions and increase digital payments. In this article, we will look at the Cash Transaction limit under Income Tax Act, 1961 & GST as well as the penalty for exceeding the specified threshold.

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Key Abstract- Cash Transaction limit under Income Tax Act, 1961 & GST

Many transactions in India go unaccounted for, with people frequently transacting in cash to avoid the government’s attention. To combat the threat of black money, the government has imposed several restrictions on individuals and businesses who transact in cash. Anyone who exceeds these limits may face steep penalties of up to 100% of the amounts in question. Cash transactions exceeding Rs.2 lakh are strictly prohibited under the Income Tax Act, 1961. Section 269ST of the Income Tax Act prohibits accepting cash in excess of Rs.2 lakh from a single person on a single day, or in respect of multiple transactions received from a single person relating to a single event or occasion. Instead, the same will have to be paid for with a cheque, a credit card, or a bank transfer.

Cash Transaction limit under Income Tax Act, 1961 

The Finance Act, 2017 included several measures to combat black money, including the addition of a new Section 269ST to the Income Tax Act. Section 269ST restricted cash transactions and limited them to Rs.2 lakhs per day. Section 269ST states that no one shall receive more than Rs 2 lakh:

  • In total from a single person in a day; or
  • In the case of a single transaction; or
  • In relation to transactions relating to a single event or occasion from a person.

However, the Central Board of Direct Taxes (CBDT) has clarified that this cash withdrawal limit does not apply to withdrawals from banks and post offices.

As a result, the provisions of Section 269ST do not apply to:

  • Cash received via Account Payee Cheque, Account Payee Bank Draft, or electronic clearing system (ECS) via a bank account.
  • Any receipt issued by the government, a banking institution, a post office savings bank, or a cooperative bank.
  • Natural transactions, as defined in Section 269SS.
  • Such other persons, classes of persons, or receipts as the Central Government may specify by notification in the Official Gazette.

Withdrawal from the Postal Service

  • Post offices run by the Indian Postal Department Post Office savings account withdrawals are possible, as is ATM access.
  • The maximum amount of cash that can be withdrawn from a post office or ATM in a single day is Rs.25, 000, with a transaction limit of Rs.10, 000.
  • The post office allows five free transactions per month, both financial and non-financial (balance enquiry, statement request). A fee of Rs.20 with GST is levied for transactions that are not free.
  • Withdrawals from other bank ATMs are permitted, with up to three free transactions in metro areas and five free transactions in non-metro areas. For transactions that exceed the free transactions, a fee of Rs.20 with GST is levied.

Withdrawal from Banks

The amount deposited can be withdrawn from both the savings and current accounts using a chequebook/withdrawal slip or an automated teller machine using a debit card. The cash withdrawal limit varies from bank to bank and also depends on the type of card used. Depending on the bank, it can range from 10,000 to 50,000 per day. However, the transaction details as reported by the State Bank of India are provided below.

  • Most banks limit chequebook withdrawals to 60 per half-year.
  • The amount of money that can be debited from the current account is limited to Rs.1, 000,000 per week, while the amount of money that can be drawn from the savings account is limited to Rs.24, 000 per week.
  • ATM withdrawals allow for Rs.10, 000 per day and unlimited free transactions for salary accounts, whereas other ATMs charge a fee of Rs.20 plus GST per month.

Cash Transaction Limit under Income Tax Act, 1961

The main income tax sections that deal with cash transaction limits are as follows:

  • Sections 40A(3) and 43 – Concerning Cash Payment
  • Sections 269SS and 269ST – Apply to Cash Receipts
  • Section 269T – Repayment of Certain Loans and Deposits

Let’s discuss them in detail.

Section 40A (3) of the Income Tax Act

Section 40A (3) of the Income Tax Act addresses the cash transaction limit for cash expenditures. If payment for any expenditure exceeding Rs.10, 000 is made in cash, the expenditure is disallowed under Section 40A (3) of the Income Tax Act. As a result, it is critical for all taxpayers to make any payments for expenses exceeding Rs.10, 000 through banking channels such as debit card, account transfer, cheque, or demand draught.

Section 43 of the Income Tax Act

Section 43 of the Income Tax Act states that if a taxpayer pays more than Rs.10, 000 in cash for the acquisition of an asset, the expenditure is disregarded for the purposes of determining the actual cost of the asset. As a result, it is critical for all taxpayers purchasing assets to make all payments to the seller through banking channels.

Section 269SS of Income Tax Act

Section 269SS prohibits a taxpayer from taking/accepting loans, deposits, or cash payments in excess of Rs.20, 000. All loans and deposits exceeding Rs.20, 000 must be made through a banking channel. Section 269SS of the Income Tax Act, on the other hand, is not applicable when accepting/accepting a loan or deposit from the person or entity listed below:

  • Government;
  • Any bank, post office savings bank, or cooperative bank;
  • Any company formed under a Central, State, or Provincial Act
  • Any government company as defined in section 2 clause (45) of the Companies Act, 2013.
  • A Central Government-notified institution, association, or body, or class of institutions, associations, or bodies.

Finally, if both the person making the loan or deposit and the person accepting the loan or deposit have agricultural income and neither has any income taxable under the Income Tax Act, the provisions of Section 269SS will not apply.

Penalty in accordance with Section 269SS

Failure to comply with the provisions of Section 269SS may result in a penalty equal to the amount of the loan, deposit, or specified sum accepted.

  • Section 269ST of the Income Tax Act: Section 269ST of the Income Tax Act states that no one can receive INR 2 lakhs or more in cash:
    • In total from a person in a day; 
    • In respect of a single transaction; or 
    • In respect of transactions from a person relating to a single event or occasion.

    Section 269ST provisions do not apply when cash in excess of Rs.2 lakhs is received from the following individuals:

    • Government;
    • Any bank, post office savings bank, or cooperative bank;
    • A Central Government-notified institution, association, or body, or class of institutions, associations, or bodies.

Penalty in accordance with Section 269ST

A penalty equal to the amount of receipt is payable under section 271DA if the provisions of section 269ST are not followed.

  • Section 269T of the Income Tax Act: Section 269T states that any branch of a banking company, co-operative society, firm, or other person may not repay any loan or deposit other than by an account payee cheque or account payee bank draught drawn in the name of the person who made the loan or deposit if any of the following conditions are met:
    • The loan or deposit, together with interest, is worth INR 20,000 or more; or
    • On the date of repayment, the total amount of loans or deposits held by such person, either in his own name or jointly with another person, is INR 20,000 or more.

    Section 269T provisions do not apply when a loan is repaid or a deposit is taken or accepted from the person listed below:

    • Government;
    • Any banking company, post office savings bank, or co-operative bank; 
    • Any corporation established by a Central, State, or Provincial Act
    • Any Government company, as defined in clause (45) of Section 2 of the Companies Act, 2013. Any institution, association, or body, or class of institutions, associations, or bodies, as notified by the Central Government in the official gazette.

Penalty in accordance with Section 269T

In the event of failure to comply with the provisions of section 269T, a penalty equal to the amount of loan or deposit repaid is payable, according to section 271E.

Cash Transaction limit under GST

There is currently no provision in GST that restricts cash transactions.

 ITR Filing for Individuals Starting from ₹ 500/

Takeaway

Many transactions in India go unaccounted for, with people frequently transacting in cash to avoid the government’s attention. To combat the threat of black money, the government has imposed several restrictions on individuals and businesses who transact in cash. This rule also applies to debt repayments. Even property transactions have a cash transaction limit of Rs.20, 000, including advances. In the event of a violation, the assessing office may levy a penalty equal to the full amount of the loan or deposit. It should be noted that some of these restrictions have exceptions depending on the person or situation.

Reach out to the experts, if you are facing any issue with regarding to the above topic. Happy to Help. 

CA Pulkit Goyal, is a fellow member of the Institute of Chartered Accountants of India (ICAI) having 10 years of experience in the profession of Chartered Accountancy and thorough understanding of the corporate as well as non-corporate entities taxation system. His core area of practice is foreign company taxation which has given him an edge in analytical thinking & executing assignments with a unique perspective. He has worked as a consultant with professionally managed corporates. He has experience of writing in different areas and keep at pace with the latest changes and analyze the different implications of various provisions of the act.

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