Restrictions on cash transaction: Know details before making any payment

The government's intention is to curb black money, promote digital transactions, and ensure tax compliance

The government has strict regulations on cash transactions, seeking to promote digital payments, curb tax evasion, and combat money laundering. The Income Tax Act imposes limits on cash receipts, withdrawals, and expenditures, with penalties for non-compliance. Here are some limits applicable to cash transactions:
 

Cash receipt limit:

 

Under Section 269ST of the Income Tax Act, no person is allowed to receive an amount of Rs 2 lakh or more in cash:

 

In aggregate from a person in a day.

 

In respect of a single transaction.

 

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

 

Exceptions to this rule include cash received through account payee cheque/draft, electronic clearing system, or from the government, banks, post offices, and certain other specified entities. Violating Section 269ST attracts a penalty equal to the amount of cash received.

 

Cash withdrawal limits and TDS

 

For cash withdrawals, Section 194N of the Income Tax Act imposes the following limits and TDS rates:

 

If total cash withdrawals exceed Rs 1 crore in a financial year, 2 per cent TDS is applicable.

 

For individuals who have not filed income tax returns for the past three years:

 

2 per cent TDS on withdrawals over Rs 20 lakh

 

5 per cent TDS on withdrawals over Rs 1 crore

 

Certain entities like the government, banks, post offices, and business correspondents are exempt from these TDS provisions

 

Cash deposit limits

 

For individuals holding savings accounts, cash deposits totaling Rs 10 lakh or more within a fiscal year must be reported to the tax authorities.

 

The threshold is higher at Rs 50 lakh for current accounts.

 

While these deposits are not immediately taxed, financial institutions are mandated to report such transactions to the Income Tax Department for monitoring purposes.

 

Restrictions on cash loans

 

The Income Tax Act also regulates cash loans through Sections 269SS and 269T:

 

Section 269SS prohibits accepting a cash loan exceeding Rs 20,000.

 

Section 269T restricts repayment of loans above Rs 20,000 in cash.

 

Violating these provisions can result in penalties equal to the loan amount.

 

Cash gifts and fixed Deposits

 

Cash gifts less than Rs 50,000 in a financial year are exempted from tax. However, gifts received from non-relatives exceeding this limit are taxable.

 

For fixed deposits, there is no maximum cash limit, but TDS at 10 per cent applies if the interest income exceeds Rs 40,000 for individuals and Rs 50,000 for senior citizens.