Cash Transactions - Legal Backup(Income Tax)

Income Tax Provisions on Cash Transactions

• Section 269ST AND 271DA
• Section 40A(3)
• Section 269SS AND Section 271D.
• Section 269T AND Section 271E.
• Section 43(1).

Section - 269ST AND 271DA

269ST - This section is attracted when Any Person receives cash more than 2 lakhs from any person.

• From Same person in a day.
• From Single transaction.
• From  transaction relating to one event/occasion.

271DA- Levies penalty equal to amount of receipt.

Eg- A receives Rs 2,10,000 in cash from Mr. B. Then Mr. A will be liable for penalty of Rs 2.1 Lakhs. Moreover, Mr. A, if liable for Tax Audit u/s 44AB, i.e. required to report this transaction in Form No. 61A u/s 285BA. Consequences For Payer Mr B - Disallowance u/s 40A(3).

Section- 40A(3) - attracted when incurred expenditure from which payment is made in excess of 20,000 otherwise than by an A/c payee Cheque/bank draft.

• Applicable only when paid to same person from 'an expenditure'. E.g- 2 bills- 1bill of 18000 and other of 5000. Paid 23000 in cash. (Section not applicable.) (1 bill is 1 expenditure)
• If not claiming for expenditure as deduction u/s 30 to 37, 40A(3) is not applicable.

From FY 2017-18, Limit is 10,000 and not 20,000.

Note : in case of payment to transport contractor, limit is Rs 35,000/-`

Section- 269SS- No person shall accept any loan/deposit in cash of Rs. 20,000 or more.

• Cash loan from a person should not be 20,000 or more at any point of time. E.g- A took loan from B Rs.18,000 in cash. Now A cannot take more than Rs. 1999 from B in cash.
• Section 271D - if a loan or deposit is accepted in contravention of the provisions of section 269SS then a penalty equivalent to the amount of such loan or deposit may be levied by the Joint commissioner.

Section- 269T- No person shall Pay any loan/deposit in cash of rs 20,000 or more.

• In the above e.g.- B cannot pay more than 1999 to A in Cash.
• On Contraventions, penalty U/s 271E is attracted which is 100% of the amount repaid.

Issues: 

Partner Introducing capital in cash in firm : If a partner introduces capital in cash in the firm or withdraws the same to the tune of Rs 20000 or in excess of Rs 20000, then Provisions of section 269SS or 269T shall not be attracted as the introduction of capital or withdrawal from firm cannot be called as loans or deposits.

Amount paid by firm to partners or vice versa- is payment to self and does not partake the character of loan or deposits in general law. Provisions of section 269SS are not applicable to such facts.

Where Depositors residing in rural areas are not having access to banking facility and are ignorant of relevant provisions of law, it would constitute bonafide reasons for payment in cash.

Transfer of money exceeding Rs. 20000 by way of bank voucher instead of a/c payee cheque or draft does not attract penalty u/s 271D as the transaction are through banking channels only.

Section- 43(1):

• This section is introduced from FY 2017-18 as there was no provision to disallow capital expenditure incurred in cash.
• If an assessee incurs any expenditure for acquisition of any asset from which payment is made in cash in excess of Rs, 10,000, such payment shall be ignored for the purposes of determination of 'Actual Cost'.
• E.g. A purchased an asset of Rs 5 lakhs out of which 2 lakhs is paid in cash, and balance 3 lakhs by RTGS. Cost of the asset will be Rs 3 lakhs and not 5 lakhs. Thus Depreciation will be on 3 lakhs