Disallowance of cash payments

Under section 40A(3), if a person incurs expenditure and makes payment of more than Rs. 10,000 in cash per day per person, the entire expenditure is disallowed as a deduction. However, in case the payment is made for plying, hiring, or leasing goods carriages, the applicable limit becomes Rs 35,000.

The provision of Section 40A(3) does not apply to payments made by commission agents for goods received for sale on commission or consignment, as these payments are not expenditures because the goods were purchased on a commission basis. But if the commission agent buys goods on his own account, then section 40A(3) applies in such a case.

Exemptions

Some cash payments mentioned in Rule 6DD are not disallowed, such as:

• Payments made to Specified Institutions, like RBI, LIC, Primary Agricultural Credit Society, Co-op. banks, land mortgage banks, etc.
• Payments made in remote villages or towns
• Payments made in legal tender to the Government
• Payments are made by modes including Letter of credit arrangements via bank, Mail or telegraphic transfer, Book adjustment, and Bill of Exchange.
• Payments made towards agriculture or animal produce or Cottage Industry Produce
• Terminal payments made to low-paid employees if the amount is not more than Rs. 50,000.
• Salary payment made to employees posted at remote places for 15 days or more.
• Payment made to an agent or an unauthorised dealer
• Payment made for buying animals from farmers to slaughter them and sell their raw meat to traders, factories, and retail outlets.

Accepting Loans, Deposits, and Specified sum

As per Section 269SS, a recipient cannot accept a loan, deposit or any specified amount from a depositor in cash mode or any impermissible mode if the amount is more than Rs 20,000. For Primary Agricultural Credit Societies (PACS) and Primary Co-Operative Agricultural and Rural Development Banks (PCARD), the limit is increased to Rs. 2 lakhs.

Violating section 269SS can result in a penalty under Section 271D equal to the amount of loan or deposit accepted. Taxpayers should note that if both the recipient and depositor have agricultural income and do not have taxable income, then this section will not apply.

Exceptions: Transactions made with the Government, banks, post office savings banks, co-operative banks, government companies, corporations established by a Central, State, or Provincial Act, and notified institutions are exempt.

Mode of Undertaking Transactions

Section 269ST restricts any person from receiving Rs. 200,000 or more in cash:

• From a single person in a day
• For a single transaction
• For multiple transactions related to one event or occasion from a person.

If a person violates Section 269ST, then such a person will be penalised under 271DA for an amount equal to the received amount. This section is not applicable if the transaction falls under Section 269SS.

Exemptions: The section is not applicable to the amount received by the following persons:

• Government
• Any banking company, post office savings bank, or cooperative bank, or
• Any other notified persons, class of persons, or receipts.

Payment Accepted Through Electronic Modes

If the total sales or turnover of a business is more than Rs. 50 crores in the previous year, it must provide facilities to accept payments through:

• RuPay debit card
• BHIM-UPI
• BHIM-UPI QR Code

This rule does not apply to businesses that have only Business to Business (B2B) transactions if at least 95% of their total receipts for the year are through non-cash modes.

If a person violates this section, a penalty of Rs 5,000 per day will be imposed under Section 271DB.

Mode of Repayment of Certain Loans or Deposits

Under Section 269T, a person cannot repay a loan, deposit, or any specified advance in cash if the amount of the repayment is over Rs 20,000, or if the unpaid balance is more than Rs 20,000, or if the aggregate of repayment on the date of payment exceeds Rs 20,000. The transactions covered under this section are:

• Any loan or deposit repayable after notice or after a fixed period.
• Advance money related to the transfer of immovable property, even if the transfer does not happen.

Exemptions: There are no restrictions if repayment is taken or accepted by:

• Government
• Any banking company, post office savings bank, or cooperative bank
• Any corporation established by a Central, State, or Provincial Act
• Any government company defined under section 2(45) of the Companies Act, 2013
• Any other notified institution, association, or body, or class of institutions, associations, or bodies

If a person violates Section 269T, they will be liable to pay a penalty of an amount equal to the loan or deposit or specified advance under Section 271E.