100% Penalty on Cash Transactions: Income Tax Scrutiny Tightens Rules
Income Tax Department Targets High-Value Cash Transactions
The Income Tax Department has intensified its scrutiny on cash transactions to curb tax evasion and promote digital payments. Financial institutions, including banks and mutual funds, have tightened cash transaction rules, and non-compliance can lead to a penalty of up to 100 percent of the transaction amount.
Why You Should Avoid Large Cash Transactions
Many individuals still use cash for convenience, but exceeding prescribed limits can trigger tax notices and severe penalties. Under Section 269ST of the Income Tax Act, any individual receiving cash above ?2 lakh in a single transaction or across linked transactions is liable for a penalty equal to the amount received.
Top 5 Cash Transactions That Can Trigger Income Tax Notices
1. Loans, Deposits, and Advances – Section 269SS
Cash transactions exceeding ?20,000 for loans, deposits, or specified advances are prohibited.
Penalty: An amount equal to the cash accepted.
2. Receiving Cash Above ?2 Lakh – Section 269ST
No individual can accept cash exceeding ?2 lakh in a single day or through linked transactions.
Penalty: An amount equal to the cash received.
Key Provisions of Section 269ST:
- Cash receipts cannot exceed ?2 lakh from a single person in one day.
- Transactions above ?2 lakh linked to a single event or occasion are prohibited.
- Only the recipient is penalized, while the payer has no liability.
3. Repayment of Loans and Deposits – Section 269T
Cash repayments of loans or deposits exceeding ?20,000 are not allowed.
Penalty: An amount equal to the cash repaid.
4. Business Expenditures – Section 40A(3)
Cash payments exceeding ?10,000 (?35,000 for transporters) are non-deductible as business expenses.
Impact: Businesses paying more than ?10,000 in cash cannot claim it as an expense, leading to higher taxable income.
5. Donations – Section 80G
Donations above ?2,000 made in cash do not qualify for tax deductions.
Impact: Taxpayers donating in cash lose out on tax benefits.
What Should Taxpayers Do?
- Use digital payment methods like bank transfers, UPI, or cheques to comply with tax laws.
- Keep records of all transactions to avoid scrutiny.
- Ensure all financial dealings adhere to the prescribed cash transaction limits to prevent penalties.
With the Income Tax Department increasing its surveillance on cash transactions, taxpayers must remain vigilant to avoid penalties and ensure compliance with the law.
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