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Cash Transaction: Limit, Penalty & Rules

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In order to curb black money, the government has imposed various restrictions on cash payments from time to time. Here is the list of various restrictions imposed on cash transactions under the Income Tax Act 1961.

Expenditure incurred in cash

In case a person incurs any expenditure for his business or profession, in respect of which payment or aggregate of payment made in cash in a day exceeds Rs 10,,000 - 100% of such payment will be disallowed while computing his taxable income.

However, some exceptions are provided in Rule 6DD of Income Tax Rules.

Limit on recieving cash

No person is allowed to recieve in cash an amount of Rs 2,00,000 or more-

(a) in aggregate from a person in a day (even against different bills)

(b) in respect of a single transaction (even on different days)

(c) in respect of transactions relating to one event or occasion from a person

This provision does not apply to -

(i) any receipt by -

(a) Government

(b) any banking company, post office savings bank or co-operative bank

(ii) transactions of nature referred to in section 269SS;

(iii) such other persons or class of persons or receipts, which the Central Government may, by notification in the Official Gazette, specify.

Consequences of violation: Penalty u/s 271B is levied for a sum equal to the amount of such receipt.

Medical insurance premium

Any payment made in cash on account of premium on health insurance facilities is not allowed as deduction u/s 80D.

Exception – Maximum deduction of Rs 5,000 can be claimed by the assessee for the preventive health checkup. This deduction shall remain available even if the payment is made in cash.

Cash donations

If donations made in cash to a registered trust or political party exceeds Rs 2000 - will not be allowed as deduction u/s 80G. 

Taking or accepting loans or deposits in cash

No person is permitted to accept Rs 20,000 or more in cash

(a) for any loan or deposit

(b) any amount in relation to transfer of any immovable property (even if transfer does not take place).

If any cash received from a person for any such purpose is still outstanding to be repaid, then the overall limit of Rs 20,000 will apply to the outstanding amount plus any subsequent receipt in cash.

Consequences of violation - Penalty of an amount equal to the amount in cash will be levied. The penalty is imposed on the receiver, not on the payor.

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CA Anand Singh

CA Anand Singh

I am a practising Chartered Accountant with 6 years of experience in Direct and Indirect Taxation, FEMA, Corporate Law and Audit etc.