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Avoid Cash Transactions to Steer Clear of 100% Income Tax Penalties
As the government intensifies its efforts to curb black money and promote digital payments, taxpayers must exercise caution with their cash transactions. The Income Tax Department has issued stern warnings about hefty penalties, which can reach up to 100% of the transaction value, for non-compliance with specific cash transaction limits.
Key Highlights on Cash Transactions and Penalties
In a bid to tighten regulations and reduce cash dependency, the Income Tax Department released a brochure on January 2, 2025, titled “Say ‘No’ To Cash Transactions.” It emphasizes the risks associated with cash transactions, particularly their potential to attract severe tax penalties.
Section 269ST of the Income Tax Act is a critical measure in this crackdown, aimed at curbing undeclared income and encouraging digital payments. Violators of these provisions may face penalties equal to 100% of the transaction amount.
With the deadline for filing Income Tax Returns (ITR) for the assessment year 2025-26 set for July 31, taxpayers should familiarize themselves with the rules surrounding cash transactions to avoid costly mistakes.
Top Cash Transactions That May Attract Income Tax Penalties
Here are five types of cash transactions that taxpayers must carefully avoid:
1. Loans, Deposits, and Advances (Section 269SS)
Cash transactions exceeding ₹20,000 for loans, deposits, or specified sums are strictly prohibited under this provision.
Penalty: Equal to the amount accepted in cash.
2. Receiving Cash Above ₹2 Lakh (Section 269ST)
This section prohibits accepting cash exceeding ₹2 lakh in a single day, across linked transactions, or for a single event or occasion.
Penalty: Equal to the amount received.
What Section 269ST Says
Section 269ST states that no individual can accept more than ₹2 lakh from a person in the following scenarios:
In total from a person in a single day.
In connection with a single transaction.
Across transactions related to a single event or occasion.
Violations of this provision can result in penalties equal to the cash amount received. Notably, the payer is not held accountable under this section.
3. Repayment of Loans and Deposits (Section 269T)
Cash repayments exceeding ₹20,000 for loans or deposits are not permitted.
4. Business Expenditures (Section 40A(3))
Cash payments exceeding ₹10,000 (₹35,000 for transporters) are non-deductible as business expenses.
5. Donations (Section 80G)
Donations above ₹2,000 made in cash are not eligible for tax deductions.
A Push Towards a Cashless Economy
The Income Tax Department’s initiative to educate taxpayers underscores the importance of transitioning to digital payments. These measures aim to enhance transparency, reduce the risk of tax evasion, and promote a cashless economy
Taxpayers should remain vigilant and ensure compliance with cash transaction regulations. Violations could result in severe financial penalties, in addition to increased scrutiny by the authorities. By adopting digital payment methods and adhering to the prescribed limits, individuals can contribute to the government’s vision of a transparent and accountable financial system.
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