Cash Payment Restrictions for Business Expenses (Section 40A(3))

If you are paying more than Rs. 10,000 in cash for a business expenditure on one day to any person, you cannot claim it as a deduction from your taxable income. For it to qualify as a valid business expenditure, you must pay through

• Account payee cheque
• Bank draft
• An electronic clearing system through a bank account
• Other specified electronic modes (credit/debit cards, NEFT, RTGS, UPI, etc.)

For transport companies, the maximum is greater—Rs. 35,000 can be given in cash as an advance payment for hiring, plying, or leasing goods carriages.

Solely Relevant Exceptions:

Payments exceeding these limits are permitted under certain conditions:

• Payments to institutions such as the RBI, banks, and LIC
• Government payments that are mandated to be made in legal tender
• Payments through banking modes, such as letters of credit
• Book adjustments among accounts
• Payments to farmers against agricultural produce
• Payments against cottage industry products
• Remoteness village payments where banking facilities are not available
• Terminal employee payments to (maximum Rs. 50,000)

Restriction on Acceptance of Loans and Deposits (Section 269SS)

It is not allowed to accept loans, deposits, or advances for property transactions for Rs. 20,000 or above in cash. They need to be accepted through account payee cheques, drafts, or electronic means.

The restriction holds when:

• A loan/deposit is Rs. 20,000 or above
• Past non-receipt loans from the same individual amount to Rs. 20,000 or more
• The new loan and outstanding loans combined equal Rs. 20,000 or more

In the case of agricultural credit societies, the limit is higher at Rs. 2 lakhs.
Contravening this provision is a penalty that equals the value of the loan or deposit received in cash.

General Cash Receipt Restriction (Section 269ST)

No individual should receive Rs. 2 lakhs or more:

• From one person in a day
• In one transaction
• For one event or occasion, related transactions

Assuming you sell Rs. 2.5 lakhs worth of goods and the buyer pays in installments (Rs. 1.5 lakhs, Rs. 25,000, Rs. 75,000), you will be violating this provision as soon as the total receipt for that transaction crosses Rs. 2 lakhs.

The penalty for default is equivalent to the amount of cash received.

Electronic Payment Facilities (Section 269SU)

Businesses with a turnover of over Rs. 50 crores are required to provide facilities for the acceptance of payments through:

• RuPay debit cards
• UPI (BHIM-UPI)
• UPI QR Code (BHIM-UPI QR Code)

These facilities need to be made available in addition to other electronic payment modes. Not making these facilities available involves a penalty of Rs. 5,000 per day.

This provision does not cover businesses with predominant B2B transactions (at least 95% of receipts via non-cash modes).

Repayment of Deposits and Loans (Section 269T)

Repayment of deposits or loans of Rs. 20,000 or more (including interest) has to be done through account payee cheques, drafts, or electronic means.

This provision is applicable when:

• The single loan/deposit with interest is Rs. 20,000 or more
• The sum of all loans/deposits in the hands of the individual is Rs. 20,000 or more
• The total of advances received is Rs. 20,000 or more

For agricultural credit societies, the limit is greater at Rs. 2 lakhs.
Violation attracts a penalty equivalent to the amount paid in cash.

Why These Restrictions Matter

These provisions are intended to:

• Foster digital and traceable financial transactions
• Decrease the circulation of black money
• Establish an audit trail for large financial transactions
• Boost tax compliance

By knowing and adhering to these regulations, people and companies can stay away from penalties while making the economy more transparent.

Refer to the Official PDF for further details