Cash Transaction: The Income Tax Department has issued a strong warning against cash transactions, cautioning taxpayers about the risks and penalties associated with non-compliance. Under the Income Tax Act, 1961, certain deductions and allowances are disallowed for cash payments, and violations above specified limits can attract penalties equal to the amount involved.
Cash Transaction: “Say ‘No’ to cash transactions. Individuals prefer to receive, pay, and transfer cash when transactional values are small, but this comes with risks,” the department emphasised in a brochure released on January 2, 2025.
How much tax do I have to pay?
The document outlines strict provisions to discourage cash usage. Section 269SS prohibits accepting cash loans, deposits, or specified sums exceeding ₹20,000, with penalties equal to the amount accepted. Similarly, Section 269ST disallows cash receipts of ₹2 lakh or more from a person in a day, for a single transaction, or transactions tied to one event, with violators facing penalties equal to the amount received.
- Section 269SS: No cash loans, deposits, or specified sums above ₹20,000.
- Section 269ST: No cash receipts of ₹2 lakh+ in a day, single transaction, or related transactions.
- Section 269T: No cash repayment of loans or deposits above ₹20,000 (including interest).
- Section 40A(3): No business expense deductions for cash payments above ₹10,000 (₹35,000 for transporters).
- Section 80G: No deductions for cash donations over ₹2,000.
- Penalties: Violations attract fines equal to 100% of the transaction amount.
Adding weight to the department’s warning, Ramakrishnan Srinivasan, former Chief Commissioner of Income Tax, cited a case where a former actress, unaware of the cash loan limits, was penalized an amount equal to the loan she accepted, highlighting the critical need for awareness about these regulations.
Repayments are also tightly regulated. Section 269T prohibits cash repayments of loans or deposits exceeding ₹20,000, with penalties matching the amount repaid. Businesses with turnovers above ₹50 crore are further mandated under Section 269SU to provide digital payment options such as UPI, NEFT, and BHIM. Non-compliance can result in daily fines of ₹5,000.
These measures aim to foster a shift toward digital financial systems and reduce reliance on cash transactions. By consolidating these rules, the Income Tax Department seeks to promote compliance and ensure taxpayers understand the risks involved.
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