Cash Receipts & Payments under Income Tax Act

• Taxation
• ||
• March 4, 2022

Cash transactions in India are one of the primary modes for accumulating black money. To deal with this Indian government recently initiated various measures to curb cash transactions and boost digital payments.

The government takes many measures. Some of the following are as follows:

• Cash transaction limit-Section 269ST
• Section 40A(3)
• Section 43
• Section 269SS

Section 269ST-cash transaction limit
The finance Act 2017 took numerous measures to restrain black money, and as an outcome of these measures, a new Section 269ST was inserted in the Income Tax Act. Section-269ST restricted a cash transaction and limited it to Rs 2 lakh per day. Section 269ST states that no individual shall obtain a sum of Rs 2 Lakh or more:

• In total from an individual in a day; or
• In respect of a single transaction; or
• In consideration of transactions relating to one event or occasion from an individual.

Although, the central board of direct taxes (CBDT) has elucidated that this cash withdrawal restriction does not relate to withdrawals from banks and post offices. Section 269ST will not apply to:

• Receipt by the government, any banking firm, post office savings bank or co-operative bank.
• Transactions of nature as referred to in Section 269SS.
• Cash obtained by an account payee cheque or an account payee bank draft or utilization of electronic clearing system (ECS) by a bank account.
• Such extra individuals or class of persons or receipts, which the central government may specify by notification official gazette.

Withdrawal from the post office

• Post offices under India’s department enable drawings from post office savings account and ATM facility.
• The limit of cash that can be extracted in one day from a post office or ATM is Rs. 25,000 and is restricted to Rs. 10,000 per transaction.
• The post office allows five free transactions per month, including financial and non-financial transactions. Afar the free transactions, Rs.20 with GST is imposed.
• Withdrawal from other bank ATMs is allowable wherein it is up to three free transactions in metropolitan cities while it is five free transactions in non-metro cities. A cost of Rs. 20 with GST is imposed for transactions above the free transactions.
  

Withdrawal from banks
The sum deposited can be withdrawn from both savings and current accounts using a chequebook/ withdrawal slip or an automated teller machine through a debit card. The cash withdrawal limit varies from bank to bank and depends on the type of card being used. It ranges from 10,000 to 50,000 per day based on the bank. Although, the transaction details notified by the State Bank of India is furnished below:

• Withdrawals using chequebook have been restricted to 60 withdrawals per half-year by most banks.
• The sum of money that can be debited from the current account is restricted to Rs. 1, 00,000 per week, as long as an overall of Rs. 24,000 can be extracted per week from the savings account.
• ATM withdrawals permits Rs. 10,000 to be extracted per day and allows unlimited free transactions for salary account whereas three transactions from other ATMs with a cost of Rs. 20 plus GST per month.
  

Cash transaction limit under income tax
The following are the chief income tax sections that pertain to cash transaction limit:

• Section 40A(3) and Section 43- relates to a cash payment
• Section 269SS and Section 269ST- concerns to cash receipts
• Section 269T- relates to the repayment of certain loans/ deposits

Section- 40A (3) of income tax
Section 40A(3) and Section 40A(3A) deal with the Disallowance of 100% of expenses if remittance is made by any mode other than account payee cheque or draft in the year of expense or the subsequent year / Year. Therefore, if payment for any expenditure of over Rs.10000 is made in cash, then the cost will be disallowed under the Income Tax Act. Hence, all taxpayers need to pay the expense of over Rs.10,000 via banking mediums like debit card, account transfer, cheque or demand draft. If the remittances are made for hiring or leasing carriages for goods such as lorries, trucks, etc., the limit is extended to Rs 35000. Further, this section extends to single payments or aggregate of payments made to a single person in a day.

Section-43
As per section-43, if a taxpayer makes any payment concerning the acquisition of an asset in cash for an amount of more than 10000, such expenditure would be ignored to determine the actual cost of the asset. Hence, while acquiring the asset, payment should be made through banking channels.

Section-269SS
As per Section-269SS, a person cannot accept a loan or deposit or any other specified amount (stated sum here refers to an advance or otherwise, concerning the transfer of any immovable property) from another individual otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system via a bank account, if:

• The amount is more than or equal to 20000; or
• Total of loan, deposit & Specified amount exceeds or is equal to 20000 from one person.
• In a case where an individual had already obtained a loan, deposit or specified sum from the depositor (person giving the loan, guarantee or specified sum) but the loan or deposit or fixed sum hasn’t been paid back in such case, if the unpaid loan or deposit or-stated sum is Rs. 20,000 or more, or
• The total amount of (1), (2) and (3) is Rs. 20,000 or more. Therefore, in a nutshell, a person cannot accept a cash loan or deposit of Rs. 20,000 or more from another person.

Section-269SS will not be applicable:

• If the amount received from the government, any banking company, post office savings bank or co-operative bank, any corporation recognied by a Central, State or Provincial Act, any Government company as explained in clause (45) of section 2 of the Companies Act, 2013 (18 of 2013), any institution, alliance or body or class of institutions, associations or bodies alerted in Official Gazette.
• A person earning only agriculture income accepts a loan or deposit from another person also earning only agriculture income.
• Receiving cash from relatives during emergencies. Here intention should not be to avoid the taxes.
• Partners contributing cash capital into a partnership firm.

Section 269ST of Income Tax Act
Section 269ST of the Income Tax Act stipulates that no individual can obtain a sum of INR 2 lakhs or more in cash:

• In total from a person in a day;
• In respect of a single transaction; or
• In consideration of transactions relating to a single affair or instance from an individual.

Provisions of Section 269ST are not relevant when cash of more than Rs. 2 lakhs is acquired from the following persons:

• Government
• Any banking institution, post office saving bank or co-operative bank;
• An institution, alliance or body or class of institutions, associations or bodies alerted by the central government in its official gazette.
  

Penalty under Section 269ST
In accordance with Section 271DA, in case of failure to act in accordance with provisions of Section 269ST, a penalty amount equivalent to the amount of receipt is payable.

Section 269T of Income Tax Act
Section 269T permits that any branch of a banking company or a co-operative society, firm or another person cannot pay back any loan or deposit otherwise than by an account payee cheque or account payee bank draft drawn in the name of the persons who has made the loan or deposit, if:

• The amount of the loan or deposit in conjunction with interest is INR 20,000 or more; or
• The entire amount of loans or deposits held by such individual, either in his name or jointly with other individual on the date of such repayment jointly with interest, is INR 20,000 or more

Provisions of Section 269T are not relevant when the loan is reimbursed or deposit taken or accepted from below mentioned persons:

• Government;
• Any banking institution, post office saving bank or co-operative bank;
• Any company initiated by a Central, State or Provincial Act
• Any government company as described in clause (45) of Section 2 of the Companies Act, 2013
• An institution, association or body or class of institutions, associations or bodies notified by the central government in the official gazette.

Penalty under Section 269T
According to Section 271E, in case of non-success to comply with provisions of Section 269T, a fine equivalent to the amount of loan or deposit repaid is payable.

At AJSH, we assist our clients in dealing with various income tax compliances, including income tax assessments, ITR filings, tax advisory and other related services by providing them adequate support and guidance from our end. If you have any questions or wish to know more about Cash Receipts and Payments under Income Tax Act, kindly contact us.