In order to curb black money, the government has imposed various restrictions on cash payments from time to time.
Paying/Receiving cash beyond these limits attracts a heavy penalty which can be up to 100% of the amount received/paid.
Here is the list of various restriction which is imposed under the Income Tax Act 1961.
Expenditure made in cash
Threshold Limit – Cash payment exceeding Rs 10,000 to a person in a single day. The limit is extended to Rs. 35,000 in case the payments are being made for plying, hiring or leasing of goods carriage to a person in a single day.
Related Section – 40A(3) of the Income Tax Act 1961 which provides that any expenditure in respect of which payment is made in a sum of exceeding Rs. 10,000 (or Rs 35,000 in the case for good carriage) to a person in a single day otherwise than by account payee cheque on a bank or by an account payee bank draft or through use of electronic clearing system shall not be allowed as deduction.
Disallowance – Whole amount of such expenses shall not be allowed as the deduction to the assessee at the time of computation of income under Profit & Gains from Business or Profession. No additional penalty is imposed on payor or receiver.
Exemption – This section 40(A)(3) doesn’t apply in certain cases given in Rule 6DD of Income Tax rules. Read about these exemptions here.
Restriction on receiving cash
Threshold Limit – Rs 2,00,000
Related Section – 269ST of Income Tax Act 1961 which provides that no person shall receive an amount of Rs 2,00,000 or more: –
- in aggregate from a person in a day (even against different bills)
- in respect of a single transaction (even on different days)
- in respect of transactions relating to one event or occasion from a person (For example, a caterer receives cash of more than Rs. 2 lakh in respect of a marriage even if separate bills are made and payment are received on separate days.)
otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account.
Penalty – Sum equal to the amount of such receipt shall be liable to be paid by the receiver as the penalty under Section 271DA of Income Tax Act. No penalty shall be imposable if such person proves that there were good and sufficient reasons for the contravention. Also, the penalty is imposed on the receiver, not on the payor.
Exemption – This section is not applicable
(i) any receipt by—
- Government
- any banking company, post office savings bank or co-operative bank
(ii) transactions of nature referred to in section 269SS;
(iii) such other persons or class of persons or receipts, which the Central Government may, by notification in the Official Gazette, specify.
Also Read – Clubbing Provisions for the Gifts Made in Cash
Restriction on donation in cash
Threshold Limit – Donation exceeding Rs 2,000 in cash to certain funds, charitable institutions etc
Related Section – 80G of Income Tax Act 1961 which provides the deduction on donation to certain funds, charitable institutions etc. Some donations qualify for either 50% or 100% tax deduction without any upper limit where some donation qualify for either 50% or 100% tax deduction subject to maximum limit of 10% Adjusted Gross Total Income.
Restriction on Deduction – The maximum amount of deduction shall not exceed Rs 2,000 in respect of donation made in cash.
Restriction on medical insurance premium
Threshold Limit – No threshold limit is applicable.
Related Section – 80D of Income Tax Act 1961 which provides the deduction, up to a maximum limit of Rs 1,00,000 on payment of medical premium and preventive health checkup, to individual or HUF.
No Deduction – No deduction is allowed for the medical insurance premium if it is paid in cash.
Exemption – Maximum deduction of Rs 5,000 can be claimed by the assessee for the preventive health checkup. This deduction shall remain available even if the payment is made in cash.
Restriction on taking or accepting loan, deposits and specified sum
Threshold Limit – Rs 20,000 or more
Related Section – 269SS of Income Tax Act 1961 which provides no person shall take or accept any loan, deposit and specified sum from any other person in cash, if
a) the amount of such loan or deposit or specified sum or the aggregate amount of such loan, deposit and the specified sum is Rs. 20,000 or more o
b) on the date of taking or accepting such loan or deposit or specified sum, any loan or deposit or specified sum is taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), the amount or the aggregate amount remaining unpaid is Rs. 20,000 or more o
c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b) is Rs. 20,000 or more.
Note: – Specified sum” means any sum of money receivable, whether as advance or otherwise, in relation to transfer of immovable property, whether or not the transfer takes place.
Penalty – Sum equal to the amount of such loan or deposit or specified sum so taken or accepted shall be liable to be paid by the receiver as the penalty under Section 271D of Income Tax Act. The penalty is imposed on the receiver, not on the payor.
Exemption – This section shall not apply to any loan or deposit or specified sum is taken or accepted from, or any loan or deposit or specified sum taken or accepted by,—
- the Government
- any banking company, post office savings bank or co-operative bank
- any corporation established by a Central, State or Provincial Act;
- any Government company
- such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette
- where the person from whom the loan or deposit or specified sum is taken or accepted and the person by whom the loan or deposit or specified sum is taken or accepted, are both having agricultural income and neither of them has any income chargeable to tax under this Act.
Restriction on repayment of loan, deposits and specified advance
Threshold Limit – Rs 20,000 or more
Related Section – 269T of Income Tax Act 1961 which provides no person shall repay any loan, or deposit with it or any specified advance in cash, if
a) the amount of the loan or deposit or specified advance together with the interest, if any, payable thereon, is Rs. 20,000 or more or
b) the aggregate amount of the loans or deposits held by such person on the date of such repayment together with the interest, if any, payable on such loans or deposits, is Rs. 20,000 or more or
c) the aggregate amount of the specified advances received by such person either in his own name or jointly with any other person on the date of such repayment together with the interest, any, is Rs. 20,000 or more.
Note: – Specified advance means any sum of money in the nature of advance, by whatever name called, in relation to transfer of an immovable property, whether or not the transfer takes place.
Penalty – Sum equal to the amount of such loan or deposit or specified sum so repaid shall be liable to be paid by the payor as the penalty under Section 271E of Income Tax Act. The penalty is imposed on the payor, not on the receiver.
Exemption – This section shall apply to repayment of any loan or deposit or specified advance has taken or accepted from: –
- Government
- any banking company, post office savings bank or co-operative bank
- any corporation established by a Central, State or Provincial Act
- any Government company
- such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette.
