Cash Transactions_Tax Treatment

Posted by CA Pankaj Kumar Vats
On 8 Jun 2020

Here in this article, we will talk about the treatment of cash transactions in businesses and others.
Govt has always discouraged the cash transactions on the ground that it leads to more options for tax evasion. And this is the reason that Govt has imposed some restrictions and conditions on cash transactions.
The understanding of these restrictions and conditions is a must for everyone to avoid future penalties and tax issues.

Let us talk in detail about these restrictions and conditions

TDS on Cash Deposits [Sec 194N]

If cash withdrawal exceeds Rs. 1,00,00,000/- in aggregate during financial year, in any bank account, the bank will deduct TDS @ 2% of such cash withdrawal

Taking of Loan / Sale of Immovable Property [Sec 269SS]

Receipt of money as loan or deposit, over Rs. 20,000/- is not allowed as per the Law
Receipt of money towards the sale of immovable property is not allowed if the amount is more than Rs. 20,000/-

Consequence: The penalty would be levied, equal to the amount of money received.

Repayment of Loan / Repayment concerning Immovable Property [Sec 269T]

Repayment of loan money or advance, over Rs. 20,000/- is not allowed as per the Law.
Repayment concerning the immovable property is not allowed if the amount is more than Rs. 20,000/-

Consequence: The penalty would be levied, equal to the amount of money paid.

Receipt of Cash Gift [Sec 56(2)(vii)/(viia)/(viib)]

Receipt of money over Rs. 50,000/-

Consequence: The amount so received is taxable in the hands of recipient as Other Income.

Business Expenditure [Sec40A(3) 40A(3A)]:

Cash payment in one day for any expenditure is not allowed over Rs. 10,000/-
It simply means that if an expenditure is more than Rs. 10,000/- the payment of the same can not be made on the same day in cash.
Total Cash payment towards one expenditure or to one person shall not exceeds Rs. 10,000/-

Consequence: Deduction of such expenditure will not be allowed in computing total taxable income.

Purchase of Fixed Assets [Sec 43(1)]

Any Fixed Asset, for which the payment is made in cash and such payment exceeds Rs. 10,000/- in a day.

Consequence: Such amount shall be excluded for the purpose of depreciation under Section 32

Receipt of Cash over Rs. 2,00,000/- [Sec 296ST]

Section 269ST prohibits receipt over Rs. 2,00,000/-
In aggregate from a person in a day
In relation to a single transaction
In relation of transactions relating to one event or occasion

Consequence: Penalty, equal to the amount of receipt

Payment for Health Isurance / Donation/ Political Parties/ Scientific Reserach 

The deduction allowed only if payment is made in the prescribed mode

Consequence: Nonavailablility of deduction while computation taxable income

Now the point is this that if the payment can not be made in cash then what all are the methods, which are prescribed do pay/collect the money. The prescribed methods are Account Payee Cheque, Account Payee Bank Draft, electronic clearing system of the bank, Other electronic modes prescribed, Credit card, debit card, net banking, imps, neft and UPI

Key Points

It is really important for everyone to know about these cash transaction restrictions and conditions to avoid any tax issues. The good knowledge of Cash Transactions can help in avoiding heavy tax penalties.

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