Under the Income Tax Act in India, many rules and limits have been prescribed related to cash transactions. Following these rules is not only legally mandatory, but it also makes your financial life safe and simple.
In the eyes of the Income Tax Department, irregularities related to cash transactions can be considered as tax evasion, due to which you may have to face heavy penalty and legal action. In this article, we will tell you in detail about the important rules related to cash transactions in India.
Receiving more than Rs 2 lakh cash in a day is prohibited
Under the Indian Income Tax Act, if you receive more than Rs 2 lakh in cash in a single day, it will be against the rules. This limit will also be seen as payment made multiple times by a person under the same transaction.
For example, if a person receives more than Rs 2 lakh in cash from different sources in a single day, it will be considered illegal by the law and can result in the income tax department levying a penalty on the entire amount against you. This rule under section 269ST is strict and violating it can have severe consequences.
Cash spending limit for business
If you are spending for business, you need to keep in mind that cash spending of more than Rs 10,000 cannot be done. For example, if you have paid ₹15,000 in cash to a supplier, this expense will not be included in your tax calculation. Also, for transporters, the limit is up to ₹35,000. Such expenses have been exempted from the rules to prevent excessive use of cash in businesses and reduce cases of tax evasion.
Taking/Giving Loan or Deposit in Cash
Under the Income Tax Act, if you take or give a loan or deposit of more than Rs 20,000 in cash, it will be a violation of the rules. This means that if you borrow ₹25,000 from someone in cash, it will be against the law. Such transactions can attract a 100% penalty. This provision has been given under Section 269SS and 269T to limit cash transactions and reduce the possibility of tax evasion.
Ban on cash transactions for wedding and other personal expenses
If you pay more than ₹200,000 in cash for a wedding or other large personal event, it will also be illegal under the Income Tax Act. Due to this, if you have paid a vendor in cash above this limit, both parties may face scrutiny by the tax department. This rule has been implemented so that large personal transactions can be tracked in the financial system and unauthorized cash transactions can be avoided.
Mandatory to provide PAN number when depositing more than ₹ 50,000 in cash in the bank
When you deposit cash of ₹ 50,000 or more in the bank, you will be required to provide your PAN number. Along with this, if the total amount deposited by you in a financial year exceeds ₹ 10 lakh, then it has to be reported to the Income Tax Department. The purpose of this rule is to track large cash transactions and ensure that black money is not used.
Use of cash in buying and selling property
If you buy or sell property worth more than Rs 2 lakh, then using cash for this is prohibited. For such transactions, you have to use banking channels like cheque, demand draft or online transfer. This rule has been implemented so that transparency is maintained in property transactions and the risks associated with payment in cash can be reduced.
Why is it important to be cautious in cash transactions?
The Income Tax Department pays special attention to cash transactions. If you do not follow these rules, not only can you face penalties but also legal action in cases of tax evasion. To avoid this, you must always ensure that you do all transactions through banking channels and document every transaction properly. This will not only keep you safe but will also save you from any tax notices and penalties in the future.
(PC: Freepik)
