Certain Types Of Cash Transactions Have Serious Consequences.

1. Taking or Accepting Certain Loans, Deposits

No person is permitted to accept Rs. 20,000 or more in cash

a) For any loan or deposit or

b) Any amount related to the transfer of any immovable property (even if the transfer does not occur).
If any cash received from a person for any such purpose is still outstanding to be repaid, then the overall limit of Rs. 20,000/- will apply to the tremendous amount plus any subsequent receipt in cash.

The exceptions to this provision include the following:-
Sums of this nature accepted from

(a) Government;

(b) Any banking company, post Office Savings Bank, or co-operative bank;

(c) Any corporation established by a central, state, or provincial Act;

(d) Any Government company as defined in clause (45) of section 2 of the Companies Act, 2013;

(e) Such other institution, association body, or class of institutions, associations, or bodies which the Central Government may specify by notification in the Official Gazette.

(f) From a person having an agricultural income, and the recipient also having agricultural income and neither of them is chargeable to income tax.
Consequences of violation: A penalty of an amount equal to the amount taken in cash will be levied.

2. Repayment of Certain Loans or Deposits

Any branch of a banking company or cooperative society, firm, or other person is not allowed to repay any loan or deposit in cash if

(a) The amount of the loan or deposit or specified advance* together with the interest, if any, is Rs.20,000/- or more, or
(b) The aggregate amount of loans or deposits or specified advance held by such person, either in his own name or jointly with another person on the date of such repayment together with the interest, any, is Rs.20,000/- or more.
(c) w.e.f 2019-20. TDS @ 2% to be deducted on cash withdrawals of Rs. 1 Crore in a year from a bank account for business purposes.

To any person who has made

a) The loan or deposit or
b) Paid the specified advance*

This provision does not apply to-
Repayment of any loan or deposit or specified sum* taken or accepted from –

(a) Government;
(b) Any banking company, post office savings bank, or cooperative bank;
(c) Any corporation established by a central, state, or provincial Act;
(d) Any Government company as defined in clause (45) of section 2 of the Companies Act, 2013;
(e)Such other institution, association body, or class of institutions, associations, or bodies which the Central Government may specify by notification in the Official Gazette.
(Refer Sec.269T)

*Specified advance means any sum of money in the nature of advance, by whatever name called in relation to the transfer of immovable property, whether or not the transfer takes place.
Consequences of violation: A penalty for an amount equal to the amount of such loan or deposit repaid will be levied.

3. Other Cash Transaction

No person is allowed to receive in cash an amount of Rs. 2,00,000 or more-

(a) In aggregate from a person in a day; or
(b) With respect to a single transaction; or
(c) With respect to transactions relating to one event or occasion from a person,

This provision does not apply to-

(i) Any receipt by-
(a) Government;
(b) Any banking company, post office savings bank, or cooperative bank;
(ii) Transactions of the nature referred to in section 26955;
(iii) Such other persons or class of persons or receipts, which the Central Government may specify by notification in the Official Gazette. (Refer to Section 269ST)

(d) w.e.f 2019-20, Digital payments (Mode of electronic payments) are permissible in addition to account payee cheque, account payee bank draft, or electronic clearing system through a bank account. Persons having business income and turnover/ receipt exceeding 50 crores in a financial year are mandatorily required to accept payment through prescribed electronic mode or other electronic modes only. In case of failure to do so, it would attract a penalty of Rs. 5000/- for every day during which such failure continues.
Consequences of violation of this provision: penalty us. 271DA is levied for a sum equal to the amount of such receipt.

4. Disallowance of expenses incurred in Cash

In case a person incurs any expenditure for his business or profession, in respect of which payment or aggregate of payments made in cash in a day exceeds Rs. 10,000/-, 100% of such payment will be disallowed while computing his taxable income from business/ profession.
(Refer Section 40A(3)). However, some exceptions are provided (See Rule 6DD of the Income Tax Rules).

5. Deemed Income of the Subsequent year in which payment is made

In case an allowance has been made in respect of any liability incurred by a person for any expenditure, and then during any subsequent year the person makes payment in respect thereof in cash, the payment is chargeable to income-tax as income of the subsequent year if the payment or aggregate of payments made to a person in a day exceeds Rs. 10,000/-.
In case payment is being made for plying, hiring, or leasing goods carriages, then the limit is Rs.35000/-, instead of Rs. 10000/-.

6. Disallowance in respect of Fixed Assets i.e. Capital Expenditure

In case a person incurs any expenditure for the acquisition of any asset in respect of which a payment or aggregate of payments made to a
person in cash in a day exceeds Rs. 10,000/-, such expenditure is not included for the purposes of determination of the actual cost of such asset. This means that no depreciation benefit will be available on such capital expenditure incurred in cash.

Read More: GST, IT, Companies, PF, and ESI Acts Due Dates: October 2022

7. Cash Donations

Donation made in cash to a registered trust or political party, if exceeds Rs. 2000, are not allowable as a deduction u/s 80G.

8. Premium on Health Insurance

Any payment made in cash on account of premiums on health insurance facilities is not allowable as a deduction u/s 80D of the IT Act.

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