The Income Tax Laws have various restrictions on payment in cash and receipt of money in cash in respect of various transactions. Some restrictions apply to those who are engaged in business or profession and some apply to all persons.
The receipts of cash payment above Rs.2 lakh from the sale of any goods or services (other than those specifically reportable otherwise) should be reported by a business or profession that is required to get a tax audit done. All such specified transactions should be reported in an annual return in form 61A by the reporting entity.
If you are carrying on business or profession, there are various disallowances for cash transactions above a prescribed limit such as the limit of Rs.10,000 for cash expenses per day. Also, a business cannot take a loan or deposit in cash or repay any loan or deposit in cash where the outstanding amount is Rs.20,000 or more. Also, in general, there is a restriction on every person from receiving cash of Rs.2 lakh or more from a single person for one or more transactions.
You are not allowed to accept or repay any loan beyond the initial limit of Rs 20,000. Though it does not have any impact on your tax liability, but in case of default, the tax officer can levy a penalty equal to the amount of loan accepted or repaid. This threshold is not applicable for each of the transactions of a loan but will apply to every transaction irrespective of the value, once the outstanding amount of loan exceeds Rs 20,000, including the payment being made. Likewise repayment of even a single rupee cannot be made in cash if the balance in the loan account is more than 20,000 at the time of repayment. The acceptance or repayment can be made in cash as long as the balance in the loan account does not exceed the threshold of twenty thousand rupees.
However, restrictions in respect of loans are not applicable for transactions with bank, government, Government Company or corporation and other entities if specified by the government. Your home loan will not get covered under these restrictions and you can repay your home loan in cash beyond twenty thousand rupees.
The scope of coverage of cash transactions also increased with the introduction of TDS on cash withdrawals. Persons withdrawing cash will now face TDS, where rates are higher for those who have not filed their tax returns. In the case of a person who has not filed income tax returns for the past three years, the TDS rate is 2% on cash withdrawal in excess of Rs.20 lakh and up to Rs.1 crore, and TDS rate is 5% on withdrawal above Rs.1 crore.
In other cases, a TDS rate of 2% on cash withdrawal above Rs.1 crore is applicable. The TDS provisions are applied after considering the aggregate of all withdrawals from all the accounts maintained with a bank.
The tax laws have one more all pervasive restriction under Section 269ST whereby a blanket restriction has been placed on receipt of money by any person for an amount of Rs 2 lakh and above. This restriction is applicable to the recipient and not to the payer. The restriction is applicable in respect of receipt of money for each occasion or for each transaction and not necessarily for aggregate of payments in a single day.
This provision has been brought in to curb the use of black money on various occasions like marriage, travel etc. and for which no deduction is claimed by the payer under the tax laws. For example, a caterer cannot accept Rs 2 lakh and more in aggregate for marriage reception form one person whether on a single day or over the period. Likewise, though there are no restrictions on receiving payment for sale of anything like gold jewellery, house or a plot of land etc. in general, but if the value of a single transaction is more than Rs 2 lakh, the seller cannot receive more than two lakh rupees either in full or in part for such transactions.
You cannot receive any gift beyond Rs 2 lakh in cash even in cases where the gifts are not treated as your income such as gifts received at the time of your marriage or from specified relatives. In case you receive payment in contravention of the above provision, the income tax officer can levy a penalty equal to the amount of money accepted in cash. Please note that there are no penal consequences for the person who is paying such money. The restriction of Rs 10,000 as discussed above is applicable for the person who wishes to claim it as business expenditure.
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