The Income Tax Act, 1961 (the Act) imposes certain restrictions on cash transactions. These restrictions are in place to curb tax evasion and black money. This article will provide a detailed explanation of the cash limits under the Act, with reference to the relevant sections.
Cash Receipt Limit
Section 269ST of the Act prohibits any person from accepting any amount of cash exceeding ₹2 lakh (or its equivalent in foreign currency) from another person in a single transaction or in a series of transactions connected with one transaction. This limit applies to all types of cash receipts, including receipts from business transactions, personal transactions, and transactions with government agencies.
There are a few exceptions to this limit, such as:
- Payments made to government agencies
- Payments made to banks and other financial institutions
- Payments made to employees
- Payments made for medical expenses
- Payments made for educational expenses
- Payments made for agricultural purposes
If you exceed the cash receipt limit, you may be liable to a penalty of up to 100% of the excess amount.
Cash Payment Limit
Section 269ST of the Act also prohibits any person from making any cash payment exceeding ₹2 lakh (or its equivalent in foreign currency) to another person in a single transaction or in a series of transactions connected with one transaction. This limit applies to all types of cash payments, including payments for business transactions, personal transactions, and transactions with government agencies.
The same exceptions that apply to the cash receipt limit also apply to the cash payment limit.
Cash Loan Limit
Section 269SS of the Act prohibits any person from accepting or repaying any cash loan exceeding ₹20,000 (or its equivalent in foreign currency) in a single transaction or in a series of transactions connected with one transaction.
The same exceptions that apply to the cash receipt limit and the cash payment limit also apply to the cash loan limit.
Reporting Requirements
The Act also requires certain types of cash transactions to be reported to the Income Tax Department. These transactions include:
- Cash deposits exceeding ₹10 lakh in a savings account in a financial year (Section 285BA)
- Cash withdrawals exceeding ₹50 lakh in a financial year from a current account (Section 285BA)
- Receipt of cash exceeding ₹2 lakh in a single transaction or in a series of transactions connected with one transaction (Section 269ST)
If you do not report these transactions, you may be liable to a penalty.
Other Relevant Sections
In addition to the sections mentioned above, there are a few other sections of the Act that are relevant to cash limits. These sections include:
- Section 271DA: This section provides for a penalty of up to 100% of the excess amount for exceeding the cash receipt limit or the cash payment limit.
- Section 271DAB: This section provides for a penalty of up to 100% of the excess amount for accepting or repaying a cash loan exceeding the cash loan limit.
- Section 271D: This section provides for a penalty of up to 100% of the amount not reported for failing to report a cash deposit or cash withdrawal exceeding the prescribed limits.
- Section 271E: This section provides for a penalty of up to 100% of the amount not reported for failing to report the receipt of cash exceeding the prescribed limit.
Conclusion
The cash limits under the Income Tax Act are in place to curb tax evasion and black money. It is important to be aware of these limits and to comply with the reporting requirements to avoid penalties.
Tips for Compliance
Here are a few tips for complying with the cash limits under the Income Tax Act:
- Keep accurate records of all your cash receipts and payments.
- Avoid making or accepting cash payments exceeding the prescribed limits.
- If you need to make or accept a cash payment exceeding the prescribed limits, use a banking channel or other electronic mode of payment.
- Report all cash deposits and cash withdrawals exceeding the prescribed limits to the Income Tax Department.
- Report the receipt of cash exceeding the prescribed limit to the Income Tax Department.
If you have any questions about the cash limits under the Income Tax Act, please consult with a qualified tax advisor.
