Cash Transaction Limits as per Income Tax Act 1961

Cash Transaction Limits under Various Sections of Income Tax Act

Income Tax Act restricts cash transaction over a certain limit according to the provisions under some sections of the act. The main purpose behind enacting such a provision on cash transaction limit under income tax act is for curbing black money/tax evasion and encouraging transparent business practices.

The following is the list of income tax sections that pertain to cash transaction limit:

(i) Section 40A (3) and Section 43 – Pertains to Cash Payment;

(ii) Section 269SS and Section 269ST – Pertains to Cash Receipts; and

(iii) Section 269T – Pertains to Repayment of Certain Loans / Deposits.

Let us now discuss the different provisions relating to cash transaction limit as per Income Tax Act under the above listed sections in detail for a complete understanding on this topic.

Cash Transaction Limit u/s. 40A(3) of Income Tax Act                                                                                               

As per Section 40A(3), if payment for any expenditure of over Rs.10,000 is made in cash, then the expenditure will be disallowed under the Income Tax Act.

Cash Transaction Limit u/s. 43 of Income Tax Act                                                                                                     

As per section 43 of Income Tax Act, if payment of more than Rs.10,000 is made by a taxpayer for the acquisition of an asset by cash, the expenditure would be ignored for the purposes of determination of actual cost of the asset.

Cash Transaction Limit u/s. 269SS of Income Tax Act 

The intent of the section is clearly to put restrictions on cash transactions and reduce the quantum of black money which affects the revenue of the government. Black money is generally transacted in cash and a large amount of unaccounted wealth is stored and used in the form of cash. Therefore, in a bid to control unaccounted money, a section has been proposed which will limit cash transactions and in essence the black money

As per Section 269SS of Income Tax Act, a person cannot accept loan or deposit or any other specified sum of Rs.20000 or more (specified sum” means any sum of money receivable, whether as advance or otherwise, in relation to transfer of an immovable property, whether or not the transfer takes place) from another person (single person) otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account or other specified manner.

In a case where a person had already received a loan/deposit/specified sum from the depositor (person giving the loan/deposit/specified sum) but the loan/deposit/specified sum hasn’t been paid back, in such case, if the unpaid loan/deposit/specified sum accepted in cash along with a new loan/deposit/specified sum accepted in cash is Rs. 20,000 or more, section 269SS will be applicable.

a) Modes through which any amount of loans/ deposits/ specified sum can be accepted

1. Account payee cheque;
2. Account payee bank draft;
3. Via electronic clearing system through a bank account;
4. Other electronic modes as specified under rule 6ABBA of the Income Tax Rules –
5. Debit card;
6. Credit card;
7. Immediate Payment Service (IMPS);
8. Net Banking;
9. Unified Payment Interface (UPI);
10. Real Time Gross Settlement (RTGS);
11. National Electronic Funds Transfer (NEFT);
12. Bharat Interface for Money (BHIM) Aadhar Pay.

b) Persons to whom Section 269SS does not apply even when accepting loan or deposit in cash 

Section 269SS does not apply when any loan or deposit or specified sum is received by cash from the following persons or entities or bodies.

• Government;
• Any banking company, post office saving bank or co-operative bank;
• Any corporation established by a Central, State or Provincial Act
• Any Government company as defined in clause (45) of section 2 of the Companies Act, 2013
• An institution, association or body or class of institutions, associations or bodies notified by Central Government in the official gazette.
• A person earning only agriculture income accepts loan or deposit from another person also earning only agriculture income. The persons may have other income (in addition to agricultural income) chargeable to tax under the Income Tax Act, however, there should not be any income tax liability after allowing exemptions and deductions.

c) Penalty on failure to comply Section. 269SS

Failure to comply with provisions of section 269SS could lead to a penalty u/s.271D equal to the amount of loan or deposit or specified sum accepted. However, if the person is able to prove that there is a reasonable cause for such transactions, and there were no mala-fide intentions, he may not be penalized. Reasonable Permissible reasons for failure to comply section 269SS is given under section 273B.

d) Cases where no penalty shall be levied for contravention of Sec.269SS of Income Tax Act

• Transactions involving acceptance or repayment of any amount mentioned under Section 269SS only through entries made in the books of accounts.
• Cash payment or repayment transactions due to any business exigency.
• Any loan taken from and within the family including father-in-law.
• Any advance received from promoters through current accounts.
• A genuine transaction made at the time of emergency does not attract a penalty.
• Any loan taken in cash from the unorganized finance sector to repay lenders.
• Any current account transactions between sister concerns.
• Repayment or receipt of partner’s capital. If any money is exchanged in the form of a loan, deposit, etc. (through capital/current account) between partners and the partnership firm amounting to INR 20,000 or more, then it shall not be covered within the ambit of Section 269SS.
• Receiving cash from relative during emergencies. Here intention should not be to evade the taxes.
• Partners contributing cash capital into partnership firm.

e) Time limit for imposing penalty under section 271D

(i) within the end of financial year in which proceedings, during the course of which action for imposing penalty were initiated, gets completed; OR (ii) within the end of six months from the end of the month in which penalty proceedings were initiated, whichever is later.

The CBDT issued a circular in which it was directed that the provisions of paragraph (c) of section 275(1) be applied to penalty proceedings under sections 271D and 271E, and that related appeals be withdrawn.

f) Who can initiate penalty provisions

There is no such categorical condition specifically stated in the Act for the initiation of a penalty under section 271D. However, only the Joint Commissioner of Income Tax has the authority to impose a penalty under section 271D.

Some courts believe those penalty proceedings penalty bought by the assessing officer under Section 271D are also lawful, citing the reason that the Act makes no provision for the initiation of penalty proceedings under section 271D. As a result, if an AO issues a show cause notice pursuant to section 271D r.w.s. 274, it will be regarded the start of penalty proceedings.

Some courts, on the other hand, believe that because the JCIT has the right to impose penalties, it also has the power to commence penalty procedures. The satisfaction recorded by the AO to initiate is useless if the AO is unable to enforce a penalty. Only the JCIT’s satisfaction would be taken into account for imposing a penalty.

In response to the controversy, the Central Board of Direct Taxes (CBDT) issued a circular, stating that penalty proceedings under Section 271D should only be considered as having begun once the JCIT issues a Show Cause Notice under Section 274 r.w.s 271D of the Act.

g) Recent Amendment to Section 269SS

The Finance Bill of 2023 has proposed to amend Section 269SS. The amendment has proposed to increase the limit of cash loans received from certain cooperative societies from ₹20,000 to ₹2 Lakhs.

Cash Transaction Limit u/s. 269ST of Income Tax Act

Section 269ST of the Income Tax Act provides that no person can receive an amount of Rs. 2 Lakhs or more in cash:

• In aggregate from a person in a day;
• In respect of a single transaction; or
• In respect of transactions relating to one event or occasion from a person.

Provisions of Section 269ST are not applicable when cash of more than Rs.2 lakhs is received from the following persons:

• Government;
• Any banking company, post office saving bank or co-operative bank;
• An institution, association or body or class of institutions, associations or bodies notified by Central Government in its official gazette.

In case of failure to comply with provisions of section 269ST, a penalty amount equal to the amount of receipt is payable under section 271DA.

Cash Transaction Limit u/s. 269T of Income Tax Act 

As per Section 269T, any bank or a co-operative society, firm or any other person cannot repay any loan or deposit of Rs.20000 or more in cash. Section 269T is not applicable when the loan is repaid or deposit taken or accepted from below mentioned person:

• Government;
• Any banking company, post office saving bank or co-operative bank;
• Any corporation established by a Central, State or Provincial Act
• Any Government company as defined in clause (45) of section 2 of the Companies Act, 2013
• An institution, association or body or class of institutions, associations or bodies notified by Central Government in the official gazette.

In case of failure to comply with provisions of section 269T, penalty amount equal to the amount of loan or deposit repaid is payable under section 271E.

For more details on cash transaction limits, please visit the official link of IT portal- https://incometaxindia.gov.in/Booklets%20%20Pamphlets/19-say-no-to-cash-transaction.pdf

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