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April 21, 2020

How Much Cash Transaction you can do from April 2020 and restrictions by Income Tax for Individuals and Business

How Much Cash Transaction you can do from April 2020 and restrictions by Income Tax

Precautions to be taken while making cash transactions for Business and Professionals:

Cash payment and receipt is a common practice in every business and profession. Either in small or large business, cash is very important part of business. Hence it is important to understand and take precaution while making the payment to someone in business context with respect to Income tax as well.

The following are the various provisions which affect the tax liability of a business as per Income Tax Act 1961

1) Cash payment more than Rs. 10,000 to a single person in a single day (Section 40A(3) subject to rule 6DD)

If assessee makes payment for any expenditure to any person otherwise than account payee cheque or demand draft or use of electronic clearing system through a bank account or any other mode as may be prescribed is more than Rs. 10, 000 in a single day then such expenditure shall be disallowed.

Note:

  1. If payment made to transporter then the limit is Rs. 35,000
  2. If the expenditure is claimed as deduction in earlier year on due basis if such expenses is subsequently paid in cash or bearer cheque then deduction allowed earlier shall be withdrawn and taxable as Profits and gains from business and profession.
  3. If expenditure paid by cross cheque then also deduction is not allowed

2) Maximum Cash Allowed to Purchase of fixed assets for Business or Profession

Finance Act 2017, has made amendment to section 32 of the income tax act which states that if any businessman incurs any capital expenditure in cash then depreciation on such fixed assets shall not be allowed where the cash payment is more than Rs. 10000 to a single person in a single day

So all Purchase of Fixed Assets for which depreciation has to be claimed should be made by modes other than Cash

3) Limit of Cash donation to political parties and charitable trust:

As per section 13A donation to political party cannot be made in cash for more than Rs. 2000/-, if made in cash then deduction shall not be allowed to such assessee under section 80GGC and 80GGB which relates to deduction in computing total income, to individual and other persons with respect to donations to political parties. Also, deduction under section 80G shall not be allowed to assessee if donation is made to charitable trust in cash for more than Rs. 2000

So it needs to be noted that all the donation should be made by any other mode other than cash

4) Business taking or Accepting Loans or Deposit or Advance

Any person should take or repay loan or deposit (together with interest) or advance in relation t only by account payee cheque, Demand draft, online transfer through Bank account or any other electronic mode as may be prescribed, if the amount is Rs. 20, 000 or more.

On the date of repayment of such loan or advance or deposit in relation to, any loan or deposit or advance in outstanding on such date shall also be considered for Rs. 20000 limits.

The above provision does not apply if loan or deposit or advance in relation to and accepted from government, Bank, cooperative bank, post office, government company, corporation established by central, state, provincial act.

Penalty under section 271E: if assessee fails to follow section 269T then penalty shall be levied at 100% of such loan/ deposit/ advance repayment. It shall be imposed by Joint Commissioner.

Precautions to be taken while making cash transactions for all Individuals Including even for Personal Transactions

1) Buying Immovable Property

Any person should take or accept loan or deposit or advance in relation to immovable property only by account payee cheque, demand draft, online transfer through bank account or any other electronic mode as may be prescribed if the amount is Rs. 20, 000 or more. On the date of taking or accepting such loans or deposit or advance in relation to immovable property, any loan or deposit or advance in relation to immovable property taken or accepted earlier by such person and unpaid on such date shall also be considered for Rs. 20, 000 limits.

The provision is not applicable if loan/ advance/ deposit is taken from or by government, banks, cooperative bank, post office, government company, person having only agriculture income, corporation established by central, state provincial act or any other as notified by CBDT.

Where assessee fails to follow section 269SS, then penalty shall be levied at 100% of such loan, deposit, advance. The penalty shall be imposed by Joint commissioner.

2) Any Transaction of Rs 2,00,000 or Above by any Individual

Any person should not receive an amount of Rs. 2, 00, 000 or more except by account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account or any other electronic mode as may be prescribed.

  1. In aggregate from a person in a day or
  2. In respect of a single transaction or
  3. In respect of transactions relating to one event or occasion from a person.

The CBDT clarified that in respect of receipt in the nature of repayment of loan by NBFCs or Housing finance companies the receipt of one installment of loan repayment in respect of loan shall constitute a single transaction as specified in clause b of section 269ST and all the installments paid for a loan shall not be aggregated for the purposes of determining applicability of the provisions of section 269ST.

The provision does not apply in below cases:

  1. Any receipt by government, any banking company, post office savings bank or cooperative bank
  2. Transactions of the nature referred in section 269SS.
  3. Such other persons or class of persons or receipts, notified by the central government
  4. Receipt by a white label automated teller machine operator from retail outlet sources on behalf of a banking company or a cooperative bank
  5. Receipt from an agent by an issuer of prepaid payment instruments
  6. Receipt by a company or institution issuing credit cards against bills raised in respect of one more credit cards.
  7. Receipt which is not includible in the total income under section 10(17A)

Penalty under section 271DA: if assessee fails to follow section 269ST, then penalty shall be levied at 100% of such receipt. It shall be imposed by Joint Commissioner. However no penalty shall be levied if that person proves that there were good and sufficient reason for the contravention

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