Cash Transactions that Can Attract Income Tax Notice

In India, black money and corruption have been the major issues for so many decades, thus, the government has taken very efficient steps from time to time to minimize such issues.

High value cash transactions is one of the reasons for accumulation of black money so the Indian Government has amended the Income Tax Act, 1961 from time to time to control the increasing cash transactions.

There are many provisions in IT Act such as Section 269SS, 269ST which restrict high value cash transaction. The violation of provisions of every such section attracts different kind of penalties, which we will discuss in this blog.

Apart from making amendments in IT Act from time to time, the government has mandated certain financial institutions to report on them to ensure that no high-value transactions go unreported.

When any person enters into high value cash transactions, there is high probability that the Income Tax Department will take actions against him as per the provisions of law. Therefore, every person needs to think twice before entering into any high value cash transactions over and above the prescribed threshold limits.

In this blog we will discuss about the “Restricted Cash Transaction under IT Act, 1961 and their implications.

Restrictions on Cash Transactions under the IT Act, 1961.

Restriction on Cash Payments

Section 43(1) – Cash payment exceeding Rs. 10,000/- against acquisition of Asset

When an assesses has made any cash payments for more than Rs. 10,000/- for the acquisition of any assets in a financial year then as per Section 43(1) of the Income Tax Act, the assesses shall be disallowed to claim this expenditure while determining the actual cost of the asset acquired. This means that assesses cannot claim depreciation against the acquisition of asset under section 32 of the act.

Section 40A(3) – Cash Expenditure exceeding Rs. 10,000/-

The main objective of section 40A(3) is to discourage the cash payments. This section states that if an assesses has incurred cash expenses over and above Rs. 10,000/- in a day, then such expenditures shall not be allowed as deduction for computing total taxable income under the head profits and gains of business or profession.

Section 80G – Donation in cash exceeding Rs. 2,000/-

Where an assesses has made donation in cash exceeding Rs.2,000/- then he shall not be allowed to claim such donation as deduction from gross total income under section 80G of the IT Act.

Section 269T – Restriction on Repayment of loan or deposits in cash exceeding Rs. 20,000/-

The next restriction on cash transaction is imposed by Section 269T of IT Act. This provision restricts or prohibits every branch of banking companies, co-operative societies, firms or any other person from doing repayment of loan or deposits or any specified advance in cash for Rs. 20,000/- or more.

Note:- Here the term “Specified Advance” is any advance in relation to transfer of an immovable property, whether the actual transfer of property has taken place or not.

In case if a person repays any loan or deposit or specified advance as mentioned in section 269T of the IT Act in cash, in that case penalty under section 271E of the IT Act would be imposed. Such penalty would be equals to the amount of the loan or deposit or specified advance so repaid.

CASH RECEIPTS

Section 269SS – Restriction on Cash Receipt of Rs. 20,000/- or more

The Section 269SS of IT Act imposes restriction on cash receipts. This section absolutely prohibits or restricts every person from accepting any amount of money either of loan or any deposits or any other specified sum of Rs. 20,000 or more in cash from any other person.

Note:- Here, the “Specified Sum” refers to the money which is receivable in consideration of transfer of immovable property irrespective of the fact that the transfer has taken place or not in actual.

In case if a person accepts any loan or deposit or specified sum as mentioned in section 269SS of the IT Act in cash, in that case penalty under section 271D of the IT Act would be imposed. Such penalty would be equals to the amount of the loan or deposit or specified sum so received.

Section 269ST – Restriction on Cash Receipt of Rs. 2 Lakh or more

The Section 269ST of IT Act prohibits every person from accepting Cash Receipts of Rs. 2 Lakh or more in cash from any other person under any of the following conditions –

Total in aggregate in a day, or
In respect of a single transaction, or
In respect of all the transaction related to either one occasion or one event only

Nevertheless, if any person violates above provision that is he receives in cash amount of Rs. 2 Lakh or more then such person shall be liable to pay penalty equivalent to the amount of receipt under Section 271DA of the IT Act.

Provided that, the restriction of cash transaction under section 269SS, Section 269ST and Section 269T shall not be applicable on following persons –

All Government entities,
Banking Companies including post offices and co-operative banks,
Any Corporation established under any provincial, state or central act for the time being in force,
Any Government companies incorporated as per Section 2(45) of the Companies Act, 2013,
Any other association or institutions which are notified by Central Government in official gazette for this purpose.

Entities who are mandated by government to report High-Value Transactions

As discussed above, the government has mandated certain financial institutions to report on them about such persons who enters High-Value transactions in a respective financial year so as to ensure that no high-Value transactions go unreported.

Now we will discuss about these entities mandatorily required to report about persons who undertakes High-Value transactions to the Income Tax Authorities. Thereafter, if the Income Tax Department finds any such transaction suspicious then the department can send the Income Tax Notice to the persons making such high value cash transactions.

Registrar of Properties in case of Investments in Real Estate

The Registrar of properties has to report to the IT Authorities about the purchase or sale of any immovable property exceeding Rs. 30 Lakh.

Banking Institutions

In case of Cash Deposits in all Saving Bank Accounts –

The banks have to report to the IT Authorities about the cash deposits or withdrawals from saving account exceeding Rs.10 Lakh in one or all the saving accounts in the name of one person in a financial year.

In case of Fixed Deposits– Rs. 1 Lakh

Where any person deposits cash as fixed deposits beyond Rs. 1 Lakh then the Bank is mandatorily require to report all the cash transactions in fixed deposits exceeding Rs. 1 Lakh in a financial year to the Income Tax Authorities

In case of Current Account– Rs. 50 Lakh

The banks have to report to the IT Authorities about the cash deposits or withdrawals related to the current account exceeding Rs.50 Lakh in aggregate in one financial year.

Companies accepting Investments in Mutual Funds, Bonds over and above Rs.10 Lakh

The Companies which receives investments via cash in Mutual Funds, Stocks, bonds or debentures exceeding Rs. 10 Lakh from any investors in a financial year then such companies are also legally required to submit report of these investments to the Income Tax Authorities.

Credit Card Companies – Bill payment exceeding Rs. 1 Lakh

When any person makes payment in cash in respect of credit card bill exceeding Rs. 1 Lakh in a financial year, then the Credit Card Companies are required to report about all these credit card bill payments to the IT Authorities.

Conclusion

Consequently, No person is allowed to either receive or pay or otherwise give cash over and above the prescribed limit under the Income Tax Act. Moreover, various institutions like registrar of properties, Banks and other specified entities are also required to report about high value cash transactions before the IT department. Thus, every person has to be very vigilant while doing high value cash transaction to avoid income tax notices.

If you are confused how you can avoid Income Tax Notices and penalties then it is always advisable to seek professionals’ help. Manthan Experts is the right platform for seeking such assistance just by calling at 9643969969.

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