Cash at home and the 84% tax buzz: What the new rules actually mean

Expert clarifies when steep penalties apply and how routine cash won't trigger tax trouble

The buzz of a steep “84 per cent penalty” on cash lying at home has triggered anxiety among some taxpayers. Experts, however, have clarified that there was no blanket levy on keeping cash. It applies only when the money is treated as unexplained income under specific provisions of the Income Tax Act.

 

When does the 84 per cent penalty actually apply? 

According to Shefali Mundra, tax expert at ClearTax, the 84 per cent levy is linked to Sections 68, 69, 69A and 69B, which deal with unexplained cash credits, money, investments, or assets.

 

This income is taxed under Section 115BBE at:

 

-60 per cent basic tax

 

-25 per cent surcharge

 

-4 per cent cess 

 

This results in an effective rate of about 78 per cent, with no deductions or loss set-off allowed.

 

If such unexplained income is not disclosed in the return and is later detected during assessment, survey, or search, an additional 10 per cent penalty under Section 271AAC is imposed.

 

“This is how the overall levy reaches roughly 84 per cent of the unexplained amount,” says Mundra.

 

Any cash for which the taxpayer cannot establish identity, PAN, capacity of the person giving the money, and genuineness of the transaction may be categorised as unexplained.

 

Do cash withdrawals trigger tax scrutiny?

Large cash withdrawals are permitted, but they are closely tracked. Under the Statement of Financial Transactions (SFT) rules, banks must report:

 

Cash withdrawals or deposits above Rs 10 lakh a year in savings accounts

 

Cash transactions above Rs 50 lakh a year in current accounts

 

Further, TDS under Section 194N applies on high withdrawals. For those who have filed returns in any of the last three years, 2 per cent TDS applies on cash withdrawal above Rs 1 crore. For non-filers, 2 per cent applies above Rs 20 lakh and 5 per cent above Rs 1 crore. These data points alert the tax department to behavioural red flags, especially when withdrawals do not match declared income.

 

High-risk cash transactions attracting 100 per cent penalty

 

Some cash dealings invite even sharper consequences.

 

Section 269ST prohibits receiving Rs 2 lakh or more in cash from one person in a day, in a single transaction or for one event. The penalty under Section 271DA equals the entire amount received.

 

“This provision is particularly relevant in property deals where a portion of the consideration is taken in cash,” notes Mundra.

 

Similarly, cash loans or deposits above Rs 20,000 violate Sections 269SS and 269T and attract penalties equal to the amount involved. These provisions mean that substantial cash receipts, property components paid in cash and cash-based loans between individuals carry the highest compliance risk.

 

How to stay safe: practical steps

 

Mundra advises taxpayers to maintain a clear paper trail for all cash dealings.

   

Key safeguards include:

 

-Retaining bank withdrawal slips, pay-in slips and agreements for major transactions

 

-Ensuring that cash-in-hand matches book entries and bank withdrawals

 

-Avoiding high-value cash transactions for property, loans or large receipts

 

-Routinely checking AIS and Form 26AS to ensure that SFT entries and ITR disclosures align

 

A well-documented audit trail remains the most effective defence against reclassification of cash as unexplained income and the associated punitive tax consequences.