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Income Tax

Overview of restrictions on Cash Transactions under Income Tax law

[By Jyotish M. Shah (Partner), VNCA]

Section

Nature of restriction

Consequence of Contravention

40A(3)/(3A)

Expenditure in Cash exceeding Rs.10,000/-

Expenditure will not be allowed.

43

Payment for Asset exceeding Rs.10,000/- in Cash

This payment will not be considered as part of Actual cost of an Asset.

35AD

Payment for Capital expenditure exceeding Rs.10,000/- in Cash for specified business

Such payment will not be considered as deductible expenditure

80G

Cash Donation exceeding Rs.2,000/-

Shall not be allowed as deduction

269SS

Acceptance of Loan/ Deposit/ Specified sum in Contravention of Section – i.e. Sum exceeding Rs.20,000/-

Penalty u/s 271-D of Sum equal to the amount of Loan/ Deposit/ Specified sum so taken or accepted.

269T

Repayment of Loans/ Deposits/ Specified advance in contravention of section – i.e. sum exceeding Rs.20,000/-

Penalty u/s 271-E of sum equal to the amount of Loan/ Deposit/ Specified advances so repaid.

 

New Section 269ST

Receipt of any amount of Rs.2,00,000/- or more in Cash –

a) In aggregate from a person in day;

b) In respect of single Transaction; or

c) In respect of Transaction relating to one event or occasion from a person

Comment: Though section does not define transactions/ events/ occasion, it may apply to cash receipt on sale of Gold/ Jewellery, receipts on sale of business assets, receipts form events, performance, etc.

Penalty u/s 271-DA of Sum equal to the amount of such receipt.

Explanation with examples

1. If one sells goods worth Rs.4,50,000/- through three Different bills of Rs.1,50,000/- each to one person and accepts fully in cash in a single day at different times then s.269ST(a) will get violated.

2. If one sells goods worth Rs.4,00,000/- through single bill to another person and receives cash of Rs.2,00,000/- on day 1 and another on day 2 then section 269ST(b) will be violated.

3. If one accepts cash of Rs.1,00,000/- for Wedding Hall rent, Rs.1,50,000/- for catering service and Rs.1,50,000/- for Mandap Decoration, then section 269ST(c) will get violated even if cash is accepted on different dates.

Exclusions: Said Restriction shall not apply to -

a) Government

b) Any Banking Company

c) Post Office Savings Bank or Cooperation Bank

d) Such Other person or class of person or receipt may be notified by the Central Government

e) Transaction which are referred to in s. 269SS

NO PENALTY WILL BE LEVIED, IF THE PERSON CONCERNED PROVES THAT THERE WERE GOOD & SUFFICIENT REASONS FOR THE CONTRAVENTION.

Note:

1. Cash deposits of Rs. 2,00,000/- or more in bank account during the period 9th November, 2016 to 30th December, 2016 is required to be reported in the Income Tax Return.

2. Every person is required to quote his PAN on certain cash transactions which is mandatory for which a separate circular is issued.

Download PDF of Circular: Restrictions on Cash Transactions

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