Restriction on Cash Transaction

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Transactions in cash often go unaccounted and this is very common practice in India. The government has come up with various measures to curb the same in order to minimize the menace of black money.

Various new provisions have been enacted and amendments have been made to the existing provisions to put an end to or minimize cash transactions. The taxpayer who violates any such provisions are also liable to steep penalties upto 100% of the amount involved.

We will discuss such provisions through this article however before that lets understand the objective of the lawmakers behind enacting these provisions:

  • To curb money laundering and tax evasion;
  • Encouraging transparent business practices;
  • Providing enabling environment for growth of transparent business
  • Easing of Audit and Investigation.

Some of the provisions under Income Tax Act which has been enacted with the above objectives are discussed here in:

  1. Taking or accepting certain loans, deposits and specified sum:
Provisions Consequences of Violation
  •  No person is allowed to accept an amount or aggregate of amount of INR 20,000 or more in cash for any loan or deposit or any specified sum.
  • Specified sum” means any sum of money receivable, whether as advance or otherwise, in relation to transfer of an immovable property, whether or not the transfer takes place.
  •  There are certain exception to this provision.
  • Penalty of a sum equal to the amount taken in cash will be levied on recipient of cash.
  1. Other cash transaction:
Provisions Consequences of Violation
  • No person is allowed to receive in cash an amount of INR 2,00,000 or more:

a)  In aggregate from a person in a day; or

b) In respect of a single transaction; or

c) In respect of transactions relating to one event or occasion from a person.

  • This provision does not apply to:

1.  Any receipt by government or any banking company, post office savings bank or co-operative bank

2.  Transactions of nature referred in point

  • Penalty of a sum equal to the amount of such sum received in cash will be levied on recipient of cash.
  1. Acceptance of payment through prescribed Electronic Mode:
Provisions Consequences of Violation
  • Every person, carrying on business and having total sales/ turnover exceeding INR 50 crores in immediately preceding financial year is mandatorily required to provide facility for accepting payment through prescribed electronic modes in addition to facility for the other electronic modes, provided by such person.
  • Penalty of INR 5,000 for every day for every day during which such failures continues.
  1. Threshold limit for audit of accounts increased if cash transactions don’t exceed 5%:


Provisions Consequences of Violation
  • Threshold limit for tax audit for business is INR 10 Crore provided that:

a)  Aggregate of all cash receipts during the year does not exceed 5% of total receipts; and

b)  Aggregate of all cash payments during the year does not exceed 5% of the total payments.

  • Normal tax audit threshold limit for business is otherwise INR 1 Crore.
  • Not applicable

 Deduction in respect of Health Insurance Premia:

Provisions Consequences of Violation
  • Deduction is allowed in case of health insurance premium paid by the tax payer.
  • The payment, however, has to be made by any mode other than cash.
  • An exception is provided in case of any sum paid on account of preventive health check up.
  • Not applicable
  1. TDS on payment of certain amount in cash:
  • TDS @2% is applicable on cash withdrawals above INR 1 crore.
  • However, in case of a person who has not file return of income for the past assessment years relevant to three previous years for which time limit to file return has expired ,the applicable TDS rate is 2% on cash withdrawals in excess of INR 20 lakhs and upto INR 1 Crore and 5% on the withdrawals above INR 1 crore.

All these provisions would help in achieve the mission of the government to move towards a cash less economy to reduce generation and circulation of black money.

Disclaimer: All the above stated provisions of law are applicable on the date of publishing this article but are subject to amendments in law. Thus, you are requested to correlate the same with provisions prevailing for the time being in force before applying the same to any practical situation

Author : Neha Srivastava 

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