Restriction on Cash Transaction and 10 High value cash Transaction

Restriction on CASH Transaction along with TOP 10 High value cash transaction that may lead to the income tax notice

DID you know the CASH transaction Limit under Income tax and GST and what are the HIGH value Transaction?

This article will help you to solve your problems related to 2 important areas

• Restriction on CASH transaction as per LAW
• TOP 10 High value cash transaction

Introduction

One needs to remain alert while doing any kind of High value cash transaction because the Income Tax Department has become highly vigilant about the cash transactions.

1^st we have to understand what are High value + CASH Transaction?

High Value transactions are transactions which are incurred in high denominations

First of we have to understand the provision under Income Tax and GST related to CASH Transaction.

I. Restrictions on Cash Transactions under GST and Income Tax

There is NO such provision restricting the cash transaction under GST but Income tax, we have a following list of Transaction on which restriction imposed

Now, we will discuss one by one list of restriction on cash transaction

under Income tax law: -

Section 13A

No donation exceeding Rs. 2000/- can be received in cash by political parties.

Section 35AD

The capital expenditure covered U/S 35AD shall NOT be allowed as deduction if paid in cash in excess of Rs. 10000/-.

Section 36

Section 36(1) (ib) puts restrictions on deduction for amount of premium paid by the employer for health insurance of its employees if paid in cash.

Section 40A (3) and 40A (3A)

The deduction in computation of income from Business and Profession is NOT allowable in respect of which a payment or aggregate of payments made to a person in a DAY, otherwise than by a crossed account payee cheque or bank draft or use of electronic clearing system through a bank account exceeding Rs. 10,000/-.

This limit is extended to Rs. 35,000/- in the case of payment for transportation charges. Few exceptions are provided in Rule 6DD of Income Tax Rules.

Crux - NO PENALITY but expenses shall be DISALLOWED

Section 40A (3A) further provides if any amount is claimed as expenditure in any particular year and the cash payment exceeding Rs. 10000/- (35000/- for transportation charges) is made in any subsequent year. The same will be ADDED to the income of that subsequent year.

Section 43(1)

Where an assessee incurs any expenditure for acquisition of any assets in excess of Rs. 10,000/- otherwise than by way of banking channels, the same shall shall NOT be included in the cost of the asset, meaning thereby that the DEPRECIATION shall NOT be allowable on that cost

Section 80D

No deduction is allowed from gross total income if health insurance premium or medical expenditure on the health of the assessee or his parents or the dependent family members is paid in cash.

Section 80G

No deduction is allowed for donation if paid in cash in excess of Rs.2000/-

Section 80GGA

Donation in respect of scientific research or rural development are NOT deductible if paid in cash in excess of Rs. 10000/-

Section 80GGB

The contribution made by an Indian Company to any political party or electoral trust is NOT allowed as deduction if paid in cash.

Section 80GGC

The contribution made by any person other than Indian company to any political party or electoral trust is NOT allowed as deduction if paid in cash.

Section 80JJAA

This section provides for a deduction of an amount equal to 30% of additional employee cost incurred in the course of such business in the previous year for three assessment years including the assessment year relevant to the previous year in which such employment is provided. The deduction is subject to the conditions specified in the section and that the payment is made by way of any of the modes other than by way of cash.

Section 269SS 

This section restricts to accept any loan, deposit and specified sum in cash if the sum (including earlier deposit) is Rs. 20,000/- or more.

Section 269T

This section restricts to repayment of any loan, deposit and specified sum in cash if the sum is Rs. 20000/- or more.

Section 269ST-Restricition on cash transactions 

The section was introduced vide Finance Act, 2017 which prohibits the receipt of an amount of Rs. 2 Lakh or more by a person.

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

Otherwise than by an account payee cheque/draft or use of electronic clearing system through a bank account.

Note:

• The above cash transaction limit is applicable on receiver and not the payer
• Bearer cheque and Self cheque will also be considered as CASH for the purpose of this Section

Section 269SU (W.E.F. 01-11-2019)

Every person, carrying on business, shall provide facility for accepting payment through prescribed electronic modes, in addition to the facility for other electronic modes, of payment, if any, being provided by such person, if his total sales, turnover or gross receipt, as the case may be, in business exceeds 50 crore rupees during the immediately preceding previous year.

Penalty for contravention of the provisions of section 269SU can be imposed by Joint Commissioner which shall be 5000per day during which such failure continues after giving a show cause notice.

Incentive Provisions

Section 44AB

Every person

Carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceeds or exceeds 1 crore rupees in any previous year.”

The following proviso shall be inserted through Finance Act 2020 w.e.f. A/Y2021-22:-

“Provided that in the case of person whose-

a) Aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed5%, of the said amount, and

b) Aggregate of all payments made including amount incurred for expenditure, in cash, during the previous year does NOT exceed 5% of the said payment,

This clause shall have effect as if for the words “one crore”, the words “five crore rupees” had been substituted”

Section 44AD (presumptive Taxation)

Normally an eligible assessee carrying on the eligible business on which provisions of section 44AD are applicable has to declare net profit @ 8% of turnover/gross receipts (up to turnover of 2 crore rupees). However a proviso was inserted w.e.f. 01/04/2017 to provide for a lower presumptive tax @6% shall be substituted for 8% in respect of the amount of turnover or gross receipts which is received through account payee cheque or any other mode provided therein.

Sections 43CA, 50C and 56

Transactions relating to Real Estate.

The above said provisions provide that the consideration in respect of transfer of any immovable property shall NOT be LESS than stamp value fixed by the stamp valuation authority.

However, a relaxation has been provided that where the transaction is the result of an agreement executed earlier the value as per agreement may be adopted if any advance payment was made through account payee cheque or any other specified mode.

Compliances in respect of cash Transactions

Section 285BA

The section makes it obligatory on certain persons to furnish details of cash receipts/deposits in excess of Rs. 200000/- as provided in section 285BA read with Rule 114E.

Section 194N (w.e.f. 01-09-2019)

Every person, from,-

• A banking, or
• A co-operative society engaged in carrying on the business of banking, or
• A post office

who is responsible for paying any sum, or, as the case may be, aggregate of sums, in cash, in excess of 1 crore during the previous year, to any person from one or more accounts maintained by the recipient with it shall, at the time of payment of such sum, deduct an amount equal to 2% of sum exceeding one crore rupees, as income tax.

II) 2nd Part of this article, we discussed on TOP 10 HIGH VALUE CASH TRANSACTION

Various transactions that may lead to income tax notice below are the top 10 transactions that can attract income tax notice if you FAIL to report in your return

The author can also be reached at cajayprakashpandcompany@gmail.com

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