Expert Tax consultants in Udaipur examining IT Act cash dealing.

The best CA firm in Udaipur and Expert tax consultants in Udaipur discusses provisions in the Income Tax Act about cash dealings in buying/selling goods, expenses, loans and more

Income Tax Law related to Cash Transaction

In the course of business, cash transactions have been prevalent in our country since the beginning. Generally, cash is used in the following types of transactions –

  1. In buying and selling of goods {Section 269ST}
  2. Making payment towards expenses in cash {Section 40A(3)}
  3. Loan or borrowing in cash {Section 269SS}
  4. Returning loan or borrowing in cash {Section 269T}

There are different laws in the Income Tax Act for all the above transactions which are necessary for all businessmen to understand.

  1. Making Cash Sales

A new section 269ST was added by the Finance Act, 2017 regarding cash sales. Under this section, a taxpayer having income from business and profession or any other type of income cannot receive an amount of Rs 2 lakh or more in cash under any item. This provision will be applicable to the following three types of transactions –

  1. On receiving the amount from one person in one day, or
  2. on receiving money in connection with a transaction, or
  3. On receipt of money for transactions taking place in connection with an event or event.

Reason behind to introduce this provision.

Earlier black money in the form of cash was largely used in the gold and silver, wedding,. Family events etc and there was no restriction for these types of payments

Now it will not be possible to make payment  for  such works and the amount will have to be taken through Cheque only leading thereby restrict hide the transition.. In the case of commercial purchases, even today there is a law for the person making the payment and he cannot pay more than Rs 10,000 in cash, but there is no limit on cash payment for those making domestic purchases, hence they can pay in cash. To prevent this, a provision was made that the sellers should not accept only cash from them.

Many people asks  question that on one hand, under Section 40A (3), more than Rs 10,000 cannot be paid, while on the other hand, under Section 269ST, it is possible to receive cash up to Rs 2 lakh, so what does this mean? |

This means that the limit of cash payment of Rs 10,000 is in relation to business expenses and not in relation to personal expenses. Hence, a provision of Rs 2 lakh has been imposed to stop any individual from making purchases.

The following things are important regarding Section 269ST –

  1. If an invoice is of Rs 2 lakh or more, then payment cannot be received in installments. In such a case, it will not be possible to receive less than Rs 2 lakh per day. However, the total payment  in cash  can be received less than  Rs 2 lakh and the remaining amount will have to be received by cheque.
  2. If an invoice is made for less than Rs 2 lakh, its payment can be received in cash
  3. This provision is in relation to a single transaction. If invoices issued in the during the entire year are less than Rs 2 lakh but the total of whole invoice is more than Rs 2 lakh then there is no bar on receiving cash payment.
  4. If the invoice is less than Rs 2 lakh but payment is made for Rs 2 lakh or more then in such case penalty will be imposed because payment of Rs 2 lakh or more cannot be made in cash
  5. If there is single order against which, each each invoice is issued less than Rs 2 lakh and payment is made on different days for less than Rs 2 lakh, then in such a case penalty will be imposed as the transaction took place against the single order.  It will be considered as one event, whether separate invoices are made in relation to it or payment is made in pieces, the provisions of Section 269ST will be applicable.
  6. If a person sells his personal property like car, house etc. which is not related to business, then even if he receives Rs 2 lakh or more in cash, this provision will apply to him.
  7. If an invoice is more than Rs 2 lakh and it is paid in pieces,  then still  the provisions of section 269ST will be applicable on it.

Effective date of this provision –

This provision was made effective from the financial year 2017-18 i.e. 1 April 2017.

Person on whom this provision is applicable:-

This provision is applicable to all Individuals, HUF, Association Person, Body of Individual, Firm, and Company.

Person on whom it is not applicable:-

The provisions of Section 269ST will not apply to the following persons –

  1. On government
  2. Banking Company, Post Office Saving Bank or Cooperative Bank
  3. On transactions falling under section 269SS

On which receipts the provisions will apply

The provisions of Section 269ST apply to all types of receipts if  an amount of Rs 2 lakh or more has been received in cash.

Status of NBFC

CBDT had issued a clarification on July 3, 2017, in which it has been said that one installment up to Rs 2 lakh can be accepted in cash. A single installment of more than Rs 2 lakh cannot be in cash. Each installment will be treated as a separate transaction.

Penalty for violating the provision

Provision for imposing penalty equal to the amount received for violation of Section 269ST has been made in Section 271DA.

  1. Paying for expenses in cash

If a person’s income is from business or profession,

  1. Then he can make any payment in cash only up to a prescribed limit. Section 40A(3) has set a limit of Rs 10,000 for this and
  2. For payment of fare this limit has been set at Rs 35,000.
  3. Purchase of capital goods has also been included in this limit.
  4. It means no one can make any kind of payment in cash in relation to any business profession of more than Rs 10 thousand.

It is clear from the above provisions that the limit for receipt of cash is Rs 2 lakh while the limit for payment is only Rs 10 thousand.

Exception in the said provision

However, in some cases there is no restriction on making cash payment. Some circumstances have been cited in Rule 6DD of the Income Tax Rules. Due to which the expenditure is not disapproved. Such circumstances are as follows –

  1. Payments made to financial institutions, banks etc.
  2. Payments made to the government.
  3. Payment made for contracts entered into before April 1, 1969.
  4. Where payment is being made through bank.
  5. On payment by adjustment in accounts.
  6. Payment made to a cultivator, grower or producer for the purchase of agricultural forest produce, animal husbandry including hides and skins, dairy or poultry produce, pisciculture, horticulture or beekeeping products.
  7. If the payment has been made for the purchase of goods produced in the cottage industry without electrical assistance.
  8. Payment made in a village or town where no banking service is available till the date of payment.
  9. Payment made on retrenchment, death etc. of an employee whose salary did not exceed Rs 7500/- per month.
  10. Payment of salary if Tax at source has been deducted from it.
  11. Payment is required to be made on a day when there is a bank holiday or strike.
  12. Payment made to the agent if further cash payment is required by the agent.
  13. If the payment is made by an authorized money changer in the course of his business for purchasing foreign currency or travelers cheques.

3. Loan or lending in cash

The provisions of Section 269SS are applicable on giving loan or lending in cash. Under these provisions, no person can lend more than Rs 20 thousand in cash to anyone. If a person does this, a penalty equal to the loan amount can be imposed on him. This also includes the advance given for purchasing property.

4. Returning loan or borrowing in cash

If a person repays his loan or borrowing in cash, then the provisions of Section 269T apply to him. According to Section 269T, no amount more than Rs 20 thousand can be returned in cash. If this is done, a penalty equal to the amount withdrawn may be imposed.

Cash dealings are a hotbed for black money. This post from a top CA firm in Udaipur and expert tax consultants in udaipur analyzes IT Act provisions about cash transactions for expenses, loans, repayments etc.

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