Income Tax Provisions for Cash Transactions in Condensed Form

Following the demonetization of currency, the government sought to regulate cash transactions, and as a result, numerous measures were enacted to discourage such transactions. In plain words, the following are several provisions added to the Income Tax Act of 1961 and other laws:

1. SECTION 40A(3)

A payment or series of payments in cash in excess of Rs 10,000 is made to a person in a single day, other than via account payee cheque, account payee demand draft, or electronic system. The law establishes a higher threshold of Rs. 35,000/- for payments made to a carrier. If the amount exceeds Rs 10,000 or 35,000, as the case may be, such expenses are completely forbidden.

2. SECTION 40A(2)

If a payment is made to a Specified person (for example, a relative of an individual, a director of a corporation), the AO will disallow that portion of the expenditure that is deemed excessive and disproportionate.

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3. SECTION 269ST

A person cannot receive an amount of Rs 2,00,000 or more in a single transaction from a person (excluding the government or a bank) in a day, unless by an account Payee check, account Payee DD, or electronic system. The amount of the penalty for non-compliance is equal to the amount of the receipt.

4. SECTION 43(1)

Depreciation Disallowance – Expenditure for the acquisition of any asset for which a single day’s cash payment to a person exceeds Rs 10,000. Depreciation is not allowed if the value exceeds Rs 10,000.
5. SECTION 80D(2B) If you pay your health insurance premium in cash, you cannot deduct that amount.

6. SECTION 80G(5D)

Any cash contribution for a charitable donation in excess of Rs 2,000 is not deductible from gross total income.

7. SECTION 80GGA(2A)

Any contribution in excess of Rs 10,000 for scientific research or rural development (section 80GGA) is not permitted.

8. SECTION (80GGB & 80GGC)

There is no deduction for cash payments to political parties.

9.SECTION 194N

TDS @2% on cash withdrawals over 1 crore from a bank, co-operative bank, or post office under Section 194N. Each bank’s limit must be examined separately. If the person has not filed his or her last three years’ income tax return, the maximum would be Rs 20 lac. In the case of non-filler, the TDS rate will be 2% from Rs 20 lac to Rs 1 crore, and 5% over Rs 1 crore.

10.SECTION 44AB

Increase the tax audit ceiling from $5 million to $10 million if-

(a) Cash receipts must not exceed 5% of total receipts.

(b) The total amount paid in cash does not exceed 5% of the total amount due.

11.SECTION 269SS

No one can receive a loan or deposit of Rs 20,000 or more unless it is in the form of an account payee cheque, account payee draught, or electronic clearing system through a bank account. In the event of a breach, a penalty under section 271D of the Income Tax Act 1961 will be imposed in an amount equal to the amount of the loan, deposit, or specified sum taken or accepted.

12. SECTION 269T

It makes it illegal for anyone to repay a loan, deposit, or defined sum by any means other than an account payee cheque, account payee bank draught, or electronic clearing system through a bank account if:

The loan or deposit amount, including interest, is Rs. 20,000 or more.
The total amount of loans or deposits, including the amount of interest,

Rs. 20,000 or more is held by such a person in his own name or jointly with any other person. In the event of a violation, a penalty under section 271E of the Income Tax Act 1961 will be imposed equal to the amount of the loan or deposit repaid.

13.Saving account & Current account

What is the difference between a savings account and a current account? Conserving A/C

The CBDT has made it necessary for a bank or cooperative bank to record cash deposits of Rs 10 lakh or more in one or more accounts (other than a current account and time deposit) of a person during a financial year.

Tax deductions & exemptions are no longer available under the new tax regime.

The Central Board of Direct Taxes (CBDT) has stated that banks must disclose if a person deposits an amount of Rs 10 lakh or more in one or more time deposits (other than a time deposit made through renewal of another time deposit) in a financial year.
Current account customers have a cash deposit limit of 50,000 rupees. If you exceed this limit, the IT Department will be notified, and you will be given a warning.

14. Cash withdrawal limit from bank and post office

The Post Office has a 20,000 withdrawal limit per customer. No branch postmaster (BPM) may accept a cash deposit transaction in an account totaling more than $50,000 in a single day. In a single day, no cash transactions totaling more than $50,000 are permitted at other SOLs in the account. The minimum required amount to keep a savings account at a post office is $500, and if the minimum conditions are not reached, an account maintenance fee of $100 will be deducted.

15. Credit card bill payments

According to the CBDT, payments made in cash for credit card debts totaling Rs 1 lakh or more must be declared. Furthermore, any payment of Rs 10 lakh or more to settle credit card debts in a financial year (by whatever channel) must be recorded to the tax authorities.