Heavy Penalties in Case of Excessive Cash Transaction, Warns Income Tax Department

The Income Tax Department recently issued a serious warning against heavy reliance on cash transactions, referring to the strict provisions of penalties applicable under various sections of the Income Tax Act, 1961. In an attempt to encourage more digital transactions and fewer cash-based deals, the department has published a set of guidelines that outline restrictions, penalties, and exemptions concerning cash transactions.

Penalty on cash transaction not allowed under specific limit It stated that violations in cash transaction can be punishable through the same amount transacted as cash. It applies for loan, deposits, advances and all other notified transaction, in case of transaction being made more than the prescribed limits.

Important Provisions regarding Cash Transactions

1. Section 269SS: Restriction on Cash Advance Loans, Deposits, etc

• No person is permitted to accept cash loans, deposits, or specified sums of Rs 20,000 or more.
• The specified sums shall include advances of any kind in connection with, but without the transfer of, any title to an immovable property.
• Exemption includes any receipts from the government or banks or from notified institutions, or from the agricultural income-earners without taxable income.
• Penalty for contravention: A penalty under Section 271D, equal to the cash received, shall be levied upon the recipient.

2. Section 269ST: Cash Receipts Limitation

• No person can receive cash amounting to Rs 2 lakh or more:
• From a person in a single day,
• For one transaction, or
• In respect of multiple transactions having arising out of same event or occasion.
• Transactions with the Government, Banks or notified institutions will be exempt from this provision
• Penalty for contravention: Amount received in cash shall be imposable as a penalty under section 271DA.

3. Section 269T: Limits on Cash Loan and Deposit Repayments

• No loans, deposits, or specified advances totaling Rs. 20,000 or more, including interest, can be repaid in cash.
• Exemptions apply to transactions with government entities, banks, or notified institutions.
• Penalty for contravention: The payer shall be liable to a penalty under Section 271E, equal to the cash amount repaid.

Mandatory Electronic Payment Facilities for Large Businesses

Under Section 269SU, businesses with a turnover above Rs. 50 crore have to ensure payments are made through prescribed electronic modes like UPI, NEFT, RTGS, and so on. The provisions exempt business entities that are only B2B or otherwise meet the non-cash payment thresholds.

Consequences of non-compliance: Rs. 5,000 per day under Section 271DB until compliance is met.

The Income Tax Department said that these provisions aim to reduce the risks of cash transactions and encourage the use of digital payment systems. The department also shared examples of penalties imposed in the past, such as on individuals unknowingly violating cash loan limits.

A new brochure issued recently is a guide for taxpayers on the rules and penalties of cash transactions. According to experts, this is an initiative to make taxpayers aware of the importance of digital payments and the consequences of non-compliance with cash transaction rules.