Be Carefulwhile making transactions in cash!!

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Oct
12
2014

Be Carefulwhile making transactions in cash!!

Posted In Income Tax | Articles, Featured | 5 Comments
CA Umesh Sharma

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Arjuna (Fictional Character): Krishna, Today is 13th

October last day for the promotion of Elections. In the chaos of
election, crores of rupees were ceased. During this period Election
Commission has laid many restrictions on cash transaction. But what
are the provisions of cash transactions under Income Tax Act?

Krishna (Fictional Character): Arjuna, Government is taking lots

of effort to avoid cash transaction. The police officer has given right
to check vehicles and other places and cease cash if occurred. If
cash above Rs. 10 Lakhs is ceased then it is submitted to Income tax
department for enquiry. Also during the two months of Elections, if
deposit or suspicious cash is deposited or withdrawn from the bank account exceeding Rs. 10 lakhs then Bank have to
inform the same to Election Officer. Further if amount exceeding Rs. 1 lakh is transacted by the Candidate or the person
mentioned in the affidavit then the same is required to be informed the Election Officer. Apart from this there are
restrictions of Income Tax act.
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Arjuna: Krishna, According to Income Tax Act up to which amount taxpayer can incur transactions in cash?
Krishna: Arjuna, while incurring expenditure for business i.e. for purchasing goods or incurring expenditure and availing
deductions cash payment of more than Rs. 20,000/- per day should not be made otherwise deduction will be disallowed as
per section 40 (A) (3) of the Income Tax Act and tax will have to be paid such expenditure. If Businessman has made
purchases of Rs. 1 lakh from A then he can make cash payment of Rs. 20,000/- in a single day. For making payment to

02/02/2015 11:46 AM

Be Carefulwhile making transactions in cash!!

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http://taxguru.in/income-tax/carefulwhile-making-transactions-cash.html

transporter of goods the limit is Rs. 35,000/-. The following are some of the exceptions for making payment beyond limit
i.e. businessman can make payments exceeding Rs. 20,000/- as given in Rule 6DD of the Income Tax Act.
Payments to Government for e.g. sales tax, excise, customs payments 2) Payments made in the villages or places
where there is no Bank 3) The day on which payment made is bank holiday 4) Payment made to farmer for
Agricultural products, Milk and poultry farming, etc. 5) besides this, Capital expenditure can be made in cash.
Arjuna: Krishna, This was regarding cash expenses but if loans and advances are accepted or repaid in cash then what is
the provision under Income Tax?
Krishna: According to section 269 SS and 269 T of the Income Tax Act the taxpayer cannot accept or repay the loan in
cash exceeding Rs. 20,000/-. If the taxpayer has accepted or repaid loan in cash exceeding 20,000/- then the auditor has
to report the same in tax audit report. If it comes to the notice of Income Tax officer then he may levy penalty. If loan
acceptor or donor both are farmers and their receipts are not taxable according to Income tax Act then above provision is
not applicable to them. If the loan accepted is more than Rs. 20,000/- then repayment cannot be made in cash.
Arjuna: Krishna, Is there any provision for taxpayer to deposit cash in bank accounts?
Krishna: Arjuna, there is no restriction for depositing cash in bank accounts but if amount exceeding Rs. 10 lakh is
deposited in saving bank account then bank has to inform the same to income Tax department. Due to this the department
may raise enquiry or issue scrutiny notice.
Arjuna: Krishna, whether there is any provision in wealth tax act for cash transaction?
Krishna: Arjuna, if individual or HUF wealth taxpayer have cash exceeding Rs. 50,000 then it will be taxable under
wealth tax.
Arjuna: What one should learn from this cash transaction?
Krishna: Arjuna , cash is fluctuating. From where cash came and gone that no one knows. But if transaction took place
though bank the details of the same remains for long time. Many taxpayer for evading taxes incur transactions in cash and
later on get involved in tax laws. Due to which more taxes and penalty have to be paid. Therefore maximum transactions
should be made through bank and should avoid transactions in cash. Businessman says Aaj Nagad Kal Udhar but if
more transactions are incurred in cash then problems will have to be faced.

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02/02/2015 11:46 AM