Cash Transactions under IT Act

Cash Transactions

Cash is viewed as a financial means to complete a transaction between a payer and a payee. In India, following the demonetization and the emergence of UPI as a money transfer method, the landscape of transaction settlements underwent significant changes. The government actively promotes cashless transactions over cash-based ones for reasons such as transparency, taxation enforcement, prevention of the circulation of illicit funds, and combating corruption. Consequently, the Income Tax Act of 1961 imposes restrictions on cash transactions in specific scenarios. In this article, we will delve into the permissible limits for cash transactions.

Section 40A(3) and Section 40A(3A) of the Income Tax Act in India:

Aspect Section 40A(3) Section 40A(3A)
Type of Expenditure Expenditure incurred in the same year Expenditure incurred in subsequent years
Disallowance Criteria Payment exceeds Rs.10,000 and is not made Payment exceeds Rs.10,000 and is not made
by A/c payee cheque/draft/ECS or electronic by A/c payee cheque/draft/ECS or electronic
mode prescribed (Rule 6ABBA*) mode prescribed (Rule 6ABBA*)
Disallowance Percentage 100% 100%
Applicability Conditions (Both Sections) a. Expenditure exceeds Rs.10,000 a. Deduction claimed for expenditure
b. Payment made in cash exceeding exceeding Rs.10,000 in any of the
Rs.10,000 in a day in earlier years
Specific Condition (Section 40A(3A) only) b. Payment made in subsequent years b. Payment in cash in a subsequent year
after deduction claimed exceeding Rs.10,000 in a day
on due basis

Note: Rule 6ABBA prescribes the modes of payment for the purpose of these sections.

Section 40A(3) Disallowance Conditions:
1. If specific conditions are met, the entire expenditure is disallowed under the respective section.
2. Payments to transporters for goods carriages can increase the threshold amount from Rs.10,000 to Rs.35,000.

Exceptions to Section 40A(3):
3. When an assessee pays two different bills in cash, as long as neither exceeds Rs.10,000/Rs.35,000, section 40A(3) does not apply.
4. If payments are made partly by account payee cheque and partly in cash, and the cash portion doesn’t exceed Rs.10,000/Rs.35,000 at once, section 40A(3) is not triggered.
5. Payments made for a single bill exceeding Rs.10,000/Rs.35,000 on different days to the same person in cash are exempt, provided individual payments stay under Rs.10,000/Rs.35,000.
6. Section 40A(3) applies only when expenditure is claimed as a deduction under specific sections (30 to 37).

Calculation of Disallowance:
7. If a portion of expenditure is already disallowed under other provisions, disallowance is based on the allowed portion.

Dual Application of Sections:
8. In cases where both section 40A(2) and section 40A(3) apply, first disallow the excess under section 40A(2).
9. If the remaining balance exceeds Rs.10,000, disallow it under section 40A(3).

Exceptions to Section 40A(3):
10. Various exceptions to section 40A(3) include payments to entities like RBI, banks, co-operative banks, LIC, payments required to be made in legal tender, electronic modes of payment, and more.

Restrictions on Loans, Deposits & Advances (Section 269SS):
11. Prohibits accepting loans, deposits, or specified sums in cash or through bearer cheques for Rs.20,000 or more.
12. Specified sum includes money related to immovable property transfers.
13. Electronic modes of payment can be used for transactions exceeding Rs.19,999.

Exemptions to Section 269SS:
14. Exemptions include government entities, banking companies, corporations established by acts, and cases with both parties having agricultural income.

Penalties for Non-Compliance (Sections 269SS and 269T):
15. Penalties equal to the loan or deposit amount for non-compliance with sections 269SS and 269T.

Amendments by Finance Act, 2023:
16. Primary Agricultural Credit Societies and Primary Co-operative Agricultural and Rural Development Banks can accept and repay higher amounts in cash.

Restrictions on Cash Transactions of Rs.2 Lakhs or More (Section 269ST):
17. Prohibits receiving Rs.2,00,000 or more in cash in a day, for a single transaction, or for transactions related to one event, except through specified modes of payment.
18. Exemptions apply to government entities and transactions specified in section 269SS.

Key Points in Section 269T:
19. The restriction applies to the recipient of money.
20. It applies to all individuals and entities, regardless of the purpose.
21. It applies to receipts with or without consideration.
22. Tax consequences may apply to gifts exceeding Rs.2 Lakhs.
23. The character of the receipt (taxable or exempt) is irrelevant.

Penalty for Non-Compliance with Section 269ST:
24. Penalty equals the amount of the receipt for non-compliance with section 269ST.

In Conclusion:
25. These provisions aim to discourage cash transactions and promote cashless transactions through incentives and requirements.

If You have any queries then connect with us at [email protected] or [email protected] & Contact us  & stay updated with our latest blogs & articles

Don't forget to share this article :-

Stay Updated With Our Blogs!

Explore more of our blogs to have better clarity and understanding
of the latest corporate & business updates.

Logo Registration

Logo Registration: Protecting Your Visual Identity Introduction In today’s competitive business world, your logo is

Read More »

Why People Choose Our Services ?

Free Legal Advice

We provide free of cost consultation and legal advice to our clients.

Tech Driven Platform

All our services are online no need you to travel from your place to get our services.

Grow your business

Experts Team

We are a team of more than 15+ professionals with 11 years of experience.

Transparent pricing

There are no hidden & extra charges* other than the quote/invoice we provide.

100 % Client Satisfaction

We aim that all our customers are fully satisfied with our services.

On-Time Delivery

We value your time and we promise all our services are delivered on time.

Why Trust legal Suvidha?

People Who loved our services and what they feel.

In this Journey of the past 10+ years, we had gained the trust of many startups, businesses, and professionals in India and stand with a 4.9/5 rating in google reviews.We register business online and save time & paperwork.

Reno K Subramaniam
Reno K Subramaniam
22/03/2023
I have recently registered a Private Limited firm and was looking for a CA to take care of the filings, Startup India Certificate, and other formalities. I have received emails from legal Suvidha and a few others. I tried talking to them all. But, Mr. Mayank from Legal Suvidha was very impressive and was patient enough, prompt to answer all the queries. He has a very professional team and after the initial formalities, I started interacting with the team. It's not even 2 weeks but I really feel overwhelmed by their service and professionalism. I received my startup India certificate yesterday and my filings have been done promptly. The team at legal suvidha Ms. Nidhi, Ms. Priyanka, Ms. Koshika, and Ms. Saloni all show the same professionalism and are readily available to take care of the official filings and stuff. Overall a great experience till now and looking forward to a great journey!
pankaj tiwari
pankaj tiwari
22/03/2023
Legal suvidha is a team of genuine and experienced professionals who give you best services according to your profile
Raman Krishnan
Raman Krishnan
21/03/2023
Saloni from legalsuvidha has done a excellent job for filling and geting certificate of DPIIT. Thanks to legalsuvidha.
Prakaash Hari
Prakaash Hari
15/03/2023
Team Legal Suvidha offers a brilliant service. There communication is quite clear and they execute the job meticulously. We are a startup private limited company and their advice is so critical in making my decision. Well done team. Keep it up. Prakaash Hari, Director, ipixela.
Priyanka Rudra
Priyanka Rudra
02/03/2023
Dedicated team and fast response
Dr. Vishal Ghag
Dr. Vishal Ghag
21/02/2023
Been using their services since 3 years now and I am absolutely happy with Legal Suvidha. They have been supportive, understanding and highly skilled at helping me with my business needs.

Our Partnerships & Collaborations

Contact us and grow your business

Legal Suvidha App

Now all Professional Services in a Single Click !

Now get all the services required for your business in a single app.

Subscribe to our newsletter & grow your business

Subscribe To Our Newsletter .

Sign up to receive email updates on new product announcements, special promotions, sales & more.