The government has implemented strict regulations on cash transactions in order to promote digital payments, combat money laundering, and prevent tax evasion. These regulations are outlined in the Income Tax Act, and failure to comply with them can result in penalties.
Cash Receipt Limits
Under Section 269ST of the Income Tax Act, there are limits on cash receipts:
- No person is allowed to receive an amount of Rs 2 lakh or more in cash in aggregate from a person in a day.
- No person is allowed to receive an amount of Rs 2 lakh or more in cash in respect of a single transaction.
- No person is allowed to receive an amount of Rs 2 lakh or more in cash in respect of transactions relating to one event or occasion from a person.
Exceptions to this rule include cash received through account payee cheque/draft, electronic clearing system, or from the government, banks, post offices, and certain other specified entities. Violating Section 269ST can result in a penalty equal to the amount of cash received.
Cash Withdrawal Limits and TDS
For cash withdrawals, Section 194N of the Income Tax Act imposes the following limits and Tax Deducted at Source (TDS) rates:
- If total cash withdrawals exceed Rs 1 crore in a financial year, a 2% TDS is applicable.
- For individuals who have not filed income tax returns for the past three years:
- 2% TDS on withdrawals over Rs 20 lakh.
- 5% TDS on withdrawals over Rs 1 crore.
Certain entities such as the government, banks, post offices, and business correspondents are exempt from these TDS provisions.
Cash Deposit Limits
For individuals holding savings accounts, cash deposits totaling Rs 10 lakh or more within a fiscal year must be reported to the tax authorities. The threshold is higher at Rs 50 lakh for current accounts. While these deposits are not immediately taxed, financial institutions are required to report such transactions to the Income Tax Department for monitoring purposes.
Restrictions on Cash Loans
The Income Tax Act also regulates cash loans through Sections 269SS and 269T:
- Section 269SS prohibits accepting a cash loan exceeding Rs 20,000.
- Section 269T restricts repayment of loans above Rs 20,000 in cash.
Violating these provisions can result in penalties equal to the loan amount.
Cash Gifts and Fixed Deposits
Cash gifts below Rs 50,000 in a financial year are exempt from tax. However, gifts received from non-relatives exceeding this limit are taxable.
For fixed deposits, there is no maximum cash limit, but TDS at 10% applies if the interest income exceeds Rs 40,000 for individuals and Rs 50,000 for senior citizens.
