Ram Avtar Singh
( Expert )
02 June 2008
The Income tax Act prohibits CASH transaction of Rs 20000 and more in two cases :
While making business expenditure exceeding Rs 20,000 in CASH
While receiving or repaying loan/deposit of Rs 20000 and more in CASH
The first restriction is as per provision contained in Section 40A(3) which says that except in specific exception provided in IT Rules , no body can do business expenditure above RS 20000 by mode other than crossed cheque or Draft . Thus cash payment of business expenditure is total no-no unless case falls in certain exceptions provided in I T Rule. If you contravene this rule, then 100% ( 20% upt0 assessment year 2007-08) of such expense done in cash shall be disallowed under Section 40A(3) of the I T Act.
Some of the Exceptions given in Rule 6DD of the I T Rule
No disallowance under sub-section (3) of section 40A shall be made where any payment in a sum exceeding twenty thousand, rupees is made otherwise than by a crossed cheque drawn on a bank or by crossed Bank Draft in the cases and circumstances specified hereunder, namely:-
(a) Where the payment is made to to Government and, under the rules framed by it, such payment is required to be made in legal tender;
(b) where the payment is made to bank for any purpose
(c) where the payment is made for the purchase of-
(i) agricultural or forest produce; or
(ii) the produce of animal husbandry (including hides and skins) or dairy or poultry farming; or
(iii) fish or fish products; or
(iv) the products of horticulture or agriculture,
to the cultivator, grower or producer of such articles, produce or products;
(d) where the payment is made for the purchase of the products manufactured or processed without the aid of power in a cottage industry, to the producer of such products;
(e) where the payment is made in a village or town, which on the date of such payment is not served by and bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town;
(f) where the payment was required to be made on a day on which the banks were closed either on account of holiday or strike;
(g) Where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person;
The second restriction states under Section 269SS that no person can receive loan or deposit of Rs 20000 and more in cash in aggregate in a year . The provision is so strict that if you have taken Rs 19000 in a year and its kept as outstanding loan , then next year you can at best CAN take loan of Rs 999 only. The aggregate loan outstanding on the day of taking loan shall be taken into account for finding the limit.Similarly, you can not repay any Loan or deposit in cash above Rs 20000. Similar very strict rule applies there us/ 269T.
The penalty for contravention of section 269SS and 269 T are given u/s 271D and 271 E respectively. As per the provision , minimum penalty provided for such contravention is 100% of the loan taken or repaid.Therefore ,one should always transact through account payee cheque or draft if amount involved exceeds Rs 20000.
if you are making payment by electronic(online) payment/transfer it will be legaly allowed.