• by Sayantan Das
• 25th Aug 2020

The Income Tax Laws restrictions on Cash Transaction

There are various restrictions imposed by the income tax laws in India. Payment and receipt of money in cash fall under these restrictions. Some of these laws apply only to those in business while some apply to every citizen.

Restrictions on business professionals: The tax laws state that for business or professional purposes, there is a daily limit of Rs 10,000 to a single person up to which only cash transactions are permitted. Failure to comply would lead to the expenses paid in cash not being eligible in a tax deduction. Though, a transporter can be paid up to Rs 35,000 in a day.

Restrictions for everybody:

• Acceptance and repayment of loans: The tax laws state that one is not allowed to accept or repay any loan over the initial amount of Rs 20,000. Though this isn’t applied on every transaction of a loan, it will apply to every transaction whatever be the value, as long as the outstanding amount is more than Rs 20,000, including the payment.

A loan or deposit or specified sum of Rs 20,000 or more cannot be accepted by any person except using an account payee draft or an account payee cheque or using an electronic clearing system through a bank. This limit would also apply to the case where on the date of taking or accepting the loan or deposit, any loan or deposit taken or accepted before by that person from the depositor is still unpaid and the amount unpaid and the loan or deposit to be accepted sums up to exceed the threshold.

• Restrictions in respect to deductions: The tax laws have a ceiling for payment in cash for certain payments for which you can claim a tax deduction. If the premium for health insurance is made in cash, then it’s not admissible for deduction under Section 80D. If a donation crosses Rs 2,000 and is made in cash, then deduction for donations under Section 80G cannot be claimed.
• Acceptance of money restrictions: A provision under Section 269ST has a blanket restriction on the receipt of money above or equal to Rs 2 lakh. This doesn’t apply on the payer but the receiver. This is applicable for the receipt of money for each occasion or each transaction. This is not applicable for the sum of payments received in a day.