CASH TRANSACTIONS & RESTRICTIONS IN INDIA :

Cash transactions have been an integral part of India's economy for centuries. From small businesses to daily transactions, cash plays a significant role. It is reported that alt least 50 5 of the total financial transactions take place through cash in India . However, with the advent of digital payments, the landscape is changing. Let's explore the nuances of cash transactions in the modern era.

A cash transaction is any payment made using physical currency, such as banknotes or coins. It can occur in various scenarios, including buying goods or services, loan repayments, or even gifting money. While cash is widely accepted, there are certain limits and regulations to ensure transparency and curb illegal activities.

​Though there is no restrictions on cash holding , one has to explain to the tax authorities , if questioned , the source of such cash holding .

In India, the Income Tax Act governs the taxation process. When it comes to cash transactions, the income tax department closely monitors them. This is to prevent tax evasion and ensure that individuals and businesses are fulfilling their tax obligations. Several income tax rules are specific to cash transactions.

For instance, if you receive cash gifts exceeding a certain threshold, it may be taxable. Similarly, cash deposits or withdrawals above a specified limit may require reporting to the income tax department. Understanding these rules is essential to avoid penalties or legal issues. In the realm of cash transactions, maintaining proper documentation is crucial.

This includes invoices, receipts, and other relevant records. Not only does it help in accurate tax filing, but it also serves as evidence in case of any disputes or audits. Emphasizing on documentation is a prudent financial practice. While cash transactions continue to be prevalent, the future is undoubtedly digital.

With initiatives like Digital India and the rise of fintech, digital payments are gaining traction. They offer convenience, transparency, and often, better tax compliance. As we move forward, adapting to this changing landscape becomes imperative. Cash transactions are an integral part of our financial lives.

Understanding the legalities and income tax implications is essential. By staying informed, maintaining proper records, and embracing digital alternatives, we can ensure a seamless and compliant financial journey.
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Remember, knowledge is the key to financial well-being.

CASH HOLDING LIMIT IN INDIA :

Indian income tax Laws do not stipulate any specific limit for holding cash with you . However you must be able to explain the source of cash held , if income tax officials conduct a raid and question you . The cash held should not be unaccounted . It is better to have records of transactions to show the source of cash held .

The unaccounted cash can be seized by the tax officials and penalties can be levied up to 137 % of cash seized .

Cash Transaction Limit in India :

In general , income tax rules put following restrictions on cash transactions :

SECTION 269SS : Taking or accepting any loan or deposit or specified sum for more than Rs 20,000
SECTION 269T : Repayment of any loan or deposit or specified sum for more than Rs 20,000
SECTION 269ST : Receipt of any amount more than Rs 200,000

For the detailed rules , exceptions and penalties for contraventions , please go through the below paragraphs

How much cash can be given / taken as loan or deposit in cash ?

Acceptance of loans, deposits, and specified sum [Section 269SS] :
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Section 269SS restricts a person from taking or accepting any loan or deposit or any specified sum from any other 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 prescribed electronic mode (impermissible mode). However, restriction isn’t imposed if the recipient and depositor, both are having agriculture income and neither of them has any income chargeable to tax.

The following transactions are covered under section 269SS:  Any loan or deposit of money; or  Any sum of money receivable by way of advance or otherwise in relation to the transfer of immovable property, whether or not the transfer takes place.

The provision shall be attracted if:-
a) The amount (or aggregate) of such loan or deposit or specified sum from a depositor is Rs. 20,000 or more; or
b) On the date of taking or accepting such loan or deposit or specified sum, the amount (or the aggregate) of any loan or deposit or specified sum taken or accepted earlier from the depositor remaining unpaid is Rs. 20,000 or more; or
c) The aggregate of the sum referred to in points (a) and (b) above is Rs. 20,000 or more.

However, if a deposit is accepted by a Primary Agricultural Credit Society (PACS) or a Primary Co-Operative Agricultural and Rural Development Bank (PCARD) from its member or a loan is taken from a PACS or a PCARD by its member, the threshold of Rs. 20,000 shall be enhanced to Rs. 2 lakhs1 .

Exceptions - There is no restriction to take or accept any loan or deposit or specified sum from or by any of the following: 
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 defined under section 2(45) of the Companies Act, 2013; or
Any other notified institutions, associations, or body, or class of institutions, associations, or bodies.

Penalty for contravention of the provisions - Where a person takes or accepts any loan or deposit (or specified sum) in cash or in a mode which is in contravention of Section 269SS, he shall be liable for a penalty under Section 271D of a sum equal to the amount of the loan or deposit (or specified sum) so taken or accepted.

How much loan / deposit can be repaid in cash ?

Mode of repayment of certain loans or deposits [Section 269T]

Section 269T restricts a person from repayment of any loan, deposit, or any specified advance received by it otherwise than by an account payee cheque or account payee bank draft (drawn in the name of the person who made the loan, deposit or specified advance) or by use of electronic clearing system through a bank account or other prescribed electronic modes.

Repayment in respect of the following transactions are covered under this provision: 

Any loan or deposit of money which is repayable after notice or repayable after a period and in case of a person other than company it includes loan or deposit of any nature; or 
Any sum of money in the nature of advance in relation to the transfer of immovable property, whether or not the transfer takes place.

This provision shall be attracted if the value of the covered transaction exceeds the following limit:
a) The amount of such loan or deposit or specified advance together with the interest payable thereon is Rs. 20,000 or more;
b) The aggregate amount of the loans or deposits held either in own name or jointly with any other person on the date of such repayment together with the interest payable on such loans or deposits is Rs. 20,000 or more; or
c) The aggregate amount of the specified advances received by such person either in his own name or jointly with any other person on the date of such repayment together with the interest payable on such specified advances is Rs. 20,000 or more.

However, if a deposit is paid by a Primary Agricultural Credit Society (PACS) or a Primary Co-Operative Agricultural and Rural Development Bank (PCARD) to its member or a loan is repaid to a PACS or a PCARD by its member, the threshold of Rs. 20,000 shall be enhanced to Rs. 2 lakhs.

Exceptions - There is no restriction on repayment of any loan or deposit or specified advance taken or accepted from any of the following:  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 defined under section 2(45) of the Companies Act, 2013; or  Any other notified institutions, associations, or body, or class of institutions, associations, or bodies.

PENALTY FOR CONTRAVENTION : 100% of loan or deposit so repaid​

How much cash can be received in other cases ?

Mode of undertaking transactions [Section 269ST] :

Section 269ST restricts a person from receiving an amount of Rs. 2 lakhs or more otherwise than by an account payee cheque or account payee bank draft or use of an electronic clearing system through a bank account or other prescribed electronic modes. This provision imposes restrictions in respect of the receipts of Rs. 2 lakhs or more:

a) In aggregate from a person in a day; or
b) In respect of a single transaction; or a transaction which eventually makes the total receipt in respect of a transaction exceeding Rs. 200,000. c) In respect of a transaction relating to one event or occasion from a person -
if there are multiple transactions, relating to one event or occasion from a person they would be covered under the restriction.

Where a transaction is covered within the scope of Section 269SS (accepting loan or deposit in impermissible mode) provisions of this section shall not apply.

Exceptions - This provision shall not apply to the receipt by the following persons:  Government;  Any banking company, post office saving bank, or co-operative bank; or  Any other notified persons, class of persons, or receipts. Further, the provision of this section shall not apply to receipt by any person from any banking company, post office savings bank, or co-operative bank.

Penalty for contravention of the provisions - Where a person receives the amount in contravention of this provision, he shall be liable for a penalty under Section 271DA of a sum equal to the amount of such receipts.

TDS ON CASH WITHDRAWLS :

Section 194N provides that every banking company, cooperative bank, or post office shall be required to deduct tax at source from any sum paid in cash from one or more accounts maintained by the recipient. The tax shall be deducted at the rate of 2% or 5% as the case may be.

Tax is required to be deducted at the rate of 2% of the sum if the aggregate of the amount withdrawn exceeds Rs. 1 crore (Rs. 3 crores where the recipient is a co-operative society.

The rate shall not be further increased by Surcharge and Health & Education Cess if the sum is payable to a resident person. The rate of TDS shall be increased by the applicable surcharge and health & education cess if the payee is a non-resident person or a foreign company. If the deductee does not furnish his PAN to the deductor, the tax shall be deducted at the rate of 20% .

If a person defaults in the filing of a return If a person has not filed a return of income for all of the three assessment years immediately preceding the previous year in which cash is withdrawn, and the due date for filing the return under section 139(1) has expired, the tax shall be deducted at the rates specified:
a) At the rate of 2% of the sum, if the aggregate of the amount withdrawn exceeds Rs. 20 lakhs during the previous year but does not exceed Rs. 1 crore (Rs. 3 crores where the recipient is a co-operative society
2 ) At the rate of 5% of the sum, if the aggregate of the amount withdrawn exceeds Rs. 1 crore (Rs. 3 crores where the recipient is a co-operative society3 ) during the previous year.

How to check the return filing status?
The Department has provided a utility of "ITR Filing Compliance Check" on https://report.insight.gov.in which will be available to Scheduled Commercial Banks (SCBs) to check the IT Return filing status in bulk mode on the basis of the PAN of the deductee.
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EXEMPTIONS FROM TDS :

No tax is required to be deducted from any sum paid or payable to the following:

a) The Government
b) Any banking company or a co-operative bank or a post office
c) Any business correspondent of a banking company or a co-operative bank in accordance with the RBI guidelines
d) Any white-label automated teller machine (ATM) operator of a banking company or a co-operative bank in accordance with the RBI Authorisation; or
e) Any person specified by the Central Government.
Further, Central Government is empowered to specify the reduced rate for the deduction of tax under this provision

CASH TRANSACTIONS THAT ATTRACT ATTENTION OF INCOME TAX DEPARTMENT :

Income tax department gets information on the following types of cash transactions :

1. Cash of Rs 10 lakhs or more deposited for bank fixed deposits
2. Cash of Rs 1 lakh or more deposited toward credit card payments
3. Cash of Rs 10 lakhs or more deposited / withdrawn for savings bank accounts , cap is rs 50 lakhs for current accounts
4. Sale or purchase of properties worth of Rs 30 lakhs in cash
5. cash purchase of shares , mutual funds , debentures and bonds exceeding Rs 10 lakhs

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