Cash is still king in India, but how much cash are you actually allowed to pay?

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NEW DELHI: Even though the pandemic has accelerated the adoption of digital payments in India several times over the past two years, cash is still king in India with currency in circulation reaching an all-time high of Rs 3,09,827 crore on March 4, 2022. Point of Note: Rs 17.97 lakh crore of banknotes were in circulation before the demonetization in 2016, which has now exceeded Rs 30 lakh crore.
According to a 2019 report by the RBI, cash accounts for nearly 50% of all transactions in India, adding that the number went further north up to 70% for transactions below Rs 500. So what is the authorized limit for cash transactions in our country where the majority of payments are made in cash?
Since cash transactions have always played a key role in the Indian economy and also been a reason for the accumulation of black money, the government has imposed various restrictions on cash transactions, one of the restrictions is provided by u/s 269ST whereby a person is restricted to accept cash of Rs. 2 lakhs or more from any person during a financial year subject to certain exemptions for specified persons. This restriction applies to every activity like selling car, house, gold, wedding, birthday party, etc.
Section 269ST of the Income Tax Act imposes a restriction of Rs 2 lakh on cash transactions per day, which means that no one can receive an amount of Rs 2 Lakh or more:
• Overall one person in one day; or
•Being a single transaction; or
•With respect to transactions relating to a person’s event or occasion.
This provision does not apply:
• Cash received via an Account Beneficiary’s check or Account Beneficiary’s bank draft or use of the Electronic Clearing System (ECS) via a bank account.
•Any receipt from the State, from any banking company, postal savings bank or cooperative bank.
• Transactions of nature referred to in article 269SS.
• Such other persons or categories of persons or receipts as the central government may, by notification in the Official Gazette, specify.
What about an event like a wedding or a party?
“This restriction of Rs 2 lakh applies to occasions like wedding, birthday party, etc. or transactions like sale of gold, real estate, vacation package, renovation/ furnishing of property, etc. The payer may not claim a tax deduction for such transactions, but the restriction on recipient will still apply. This restriction is applicable for transactions as a whole and not necessarily for payments made in a single day. For example, during weddings, a caterer cannot accept more than the limit in total for a wedding from a single payer, whether such a transaction was made in a single day or on several days In general, the law does not impose any restriction on the payment of cash for transactions carried out on real estate or for example jewelry, but if a single cash transaction exceeds the specified limit, it is then prohibits the seller from accepting cash in excess of the limit for such cash transactions,” explains Sandeep Bajaj, Ma Associée, PSL Avocats et Solicitors.
What if I want to buy a refrigerator and air conditioning with cash?
“If a person buys an electronic item from a seller, the buyer is allowed to make the payment in cash up to a limit of Rs 2 lakh only. He can make the payment in one day or several installments over a period to the seller, but the aggregate payment he can make in cash to the seller for a specific transaction is limited to Rs 2 lakh.The income tax rule does not prescribe any specific document to be collected, when cash transactions occur are within the allowable limit,” said Anita Basrur -Partner, Direct Tax – Sudit K. Parekh & Co. LLP.
What about receiving money as a wedding gift?
The bride and groom cannot receive any gifts beyond Rs 2 Lakh in cash, even if such gifts are received from relatives or immediate family. In the event that they receive payments in contravention of the above provisions, the income tax department may impose a penalty equal to the amount of money accepted in cash.
“It should be noted that although there are no restrictions on receiving cash payment for the sale of anything like jewelry, goods, etc., however, if the value of a single transaction is more than Rs 2 lakh, so in such cases, the seller cannot receive more than Rs.2 Lakh, in whole or in part, for such transactions,” said Sandeep Bajaj, Managing Partner, PSL Advocates & Solicitors.
Is there a penalty?
It is worth noting that the payer has no liability under these provisions. “For example, a banquet hall cannot accept Rs 2 lakh or more in total for a single-payer wedding reception neither on a single day nor spread over several days. cash payment to the payer” says Maneet Pal Singh.
Let’s take another example: Sameer buys a ring for his wife worth Rs 2.5 lakh and pays the jeweler in 5 equal installments in a single day. Since the jeweler accepted Rs 2.5 lakhs in cash, Section 269ST is applicable and he will have to pay a penalty of Rs 2.5 lakhs.
Now, Neha has undergone surgery and her hospital bill came to Rs 4 lakh. She paid the bill in several installments on 4 different dates, but since the hospital received more than 2 lakh cash in total with respect to a single transaction/bill, the hospital will have to pay the penalty.
So, in essence, one cannot accept any cash gift beyond Rs 2 lakh on an occasion from a single donor. Those who accept cash in excess of Rs 2 lakh in violation of this provision may be subject to a penalty equal to the cash received.
“In case of violation, a penalty equal to the collection will be imposed on the person who received cash Rs2,00,000 or more. Therefore, when the seller of goods or the service provider cannot receive cash from Rs200,000/- or more, indirectly the same applies to the maximum limit for the payer.For example, various payments made to the caterer or the designer of clothes depending on the functions at a wedding will be considered against an event or occasion and if he receives a total cash payment of Rs. 200,000/- or more it will be a violation,” said Gopal Bohra, Partner, NA Shah Associates.
How to avoid penalties?
The key point is that, to avoid any penalties, cash transactions must not cross the threshold. In the event that it exceeds the authorized amount, the taxpayer will be required to pay a penalty which is the same amount as the money received during this transaction. These provisions were introduced by the authorities to promote the digital economy and fight against tax evasion and the practice of black money in the economy.
Refusal applicable to all taxpayers for sums paid in cash: The tax laws only allow you certain deductions if these were paid other than in cash. For business expenses, a limit is prescribed for cash expenses, although no such limit is prescribed for personal expenses. If you are self-employed, you cannot claim any expense beyond Rs 10,000/- if paid in cash to one person in a single day. However, there are also some exceptions: In case the payment is made for the use, hire or hire of goods wagons (for transportation), the limit is Rs 35,000, instead of Rs 10,000 .
“The above provision clearly states that in case a person incurs expenses for his business or profession, for which the payment or aggregate cash payments made in one day exceeds Rs. 10,000/-, 100 % of such payment will be disallowed when computing his taxable income from a business or profession.Furthermore, where a deduction has been made in respect of any liability incurred by any person for any expense , then in any subsequent year the person makes a payment in respect thereof in cash, the payment is subject to income tax as income in the following year if the payment or all of the payments made to one person in one day exceeds Rs. 10,000/,” said Sandeep Bajaj, Managing Partner, PSL Advocates & Solicitors.
If Rs 2 lakh in cash received in one day is from government, banking company, postal savings bank or co-operative bank, or from persons and receipts which are notified by central government are not not subject to penalties.
Acceptance and repayment of loans over Rs 20,000.
A person cannot accept a loan or cash deposit of Rs 20,000 or more from another person, nor can a person repay the loan or cash deposit, if the amount is Rs 20,000 or more. more. If a person accepts or repays loans in excess of the specified limit, the tax authorities may impose a penalty equal to the amount of the loan so accepted or repaid in cash.
“This limit of Rs. 20,000/- is not taken into account for each loan transaction but will apply to each acceptance which will have the effect of causing the loan account balance to exceed Rs. 20,000/ – or for each repayment of any loan if the balance exceeds Rs. 20,000/- at the time of such repayment, regardless of the amount of the individual transaction of acceptance or repayment. , government, government corporation or corporation and other entities specified by the government For example, in case a person pays a bank for an EMI loan in cash, this restriction will not apply,” says Aditya Chopra, Managing Partner, Victoriam Legalis – Advocates & Solicitors.
Cash donations:
Cash donations to a registered trust or political party cannot exceed Rs 2,000 in cash. If they do, they are now eligible for deductions under section 80g.
Health insurance premium:
Any payment made in cash for a premium under a health insurance establishment is not deductible under Section 80D of the Income Tax Act.
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