Income Tax Rules for Cash Transactions: In today’s time when digital payments are being promoted, the strictness of the tax department on cash transactions is not surprising. Therefore, it is important that you be aware of the existing law so that you do not get into any trouble due to your negligence.
In today’s digital era, as the way of making payments is changing, the monitoring of the Income Tax Department has also increased. If you think that unless you tell the department about a transaction, they will not know, then you are thinking wrong.
The Income Tax Department keeps a close watch on big cash transactions, and you can get an Income Tax Notice even for a small mistake.
If you take more than 2 lakh cash, you may have to pay a fine
Under section 269ST of the Income Tax Act, there is a ban on taking cash of more than Rs 2 lakh in a day. Whether it is taken in a single transaction or combined in multiple transactions.
According to experts, if a person takes Rs 5 lakh in cash in a day and the tax department gets information about it, then he may have to pay a heavy fine. Please note that this limit does not apply to cash withdrawn from banks and post offices.
In what circumstances does this rule apply?
According to section 269ST, no person or institution can take more than Rs 2 lakh in cash in a day in three situations:
- Taking more than Rs 2 lakh in cash from a single person in a day
- Taking more than Rs 2 lakh in a single transaction
- Taking more than Rs 2 lakh for a transaction related to a single occasion or event
However, there are some exceptions to this. Apart from banks, government institutions do not come under the purview of this rule.
Which sections of the Income Tax Act apply to cash transactions?
- Sections 40A(3) and 43 – Related to cash payments
- Sections 269SS and 269ST – Related to cash withdrawal
- Section 269T – Related to cash repayment of loan or deposit
Important advice for taxpayers
If you are going to give a large amount to someone or take it from somewhere, then try that the transaction is done through banking medium like NEFT, RTGS or UPI. This will not only save you from the notice from the Income Tax Department, but your financial transparency will also be maintained.
In today’s time when digital payments are being promoted, the strictness of the tax department on cash transactions is not surprising. Therefore, it is important that you are aware of the existing law so that you do not get into any trouble due to any negligence of yours. Avoid taking or giving cash of more than Rs 2 lakh. By doing this, you will not only keep yourself safe but this step will also save you from heavy fines.
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