The income tax laws in India have various restrictions on payment in cash and receipt of money in cash in respect of various transactions. Some restrictions apply to those who are engaged in business or profession and some apply to all the persons.
Let us discuss what are such restrictions:
Restrictions on those carrying on business or profession
If you are carrying on business or profession, the tax laws have prescribed a daily limit of Rs 10,000 beyond which payments in cash cannot be made for any expenditure to a single person. If you fail to do so, the expenses paid in cash will not be eligible for tax deduction. There is one exception to this rule where you can pay up to Rs 35,000 to a transporter in a day without attracting the disallowance.
Likewise in case you pay any amount beyond Rs 10,000 for acquiring any asset, such payment is not allowed to be added to the cost of the asset for the purpose of claiming depreciation. So, effectively this expenditure is also disallowed though over the years and not necessarily in the year of payment.
Restrictions applicable to all the persons
# Restrictions on acceptance and repayment of loan: The tax laws have provisions under which you are not allowed to accept or repay any loan beyond the initial limit of Rs 20,000. Though it does not have any impact on your tax liability, but in case of default, the tax officer can levy a penalty equal to the amount of loan accepted or repaid. This threshold is not applicable for each of the transactions of a loan but will apply to every transaction irrespective of the value, once the outstanding amount of loan exceeds Rs 20,000, including the payment being made. Likewise repayment of even a single rupee cannot be made in cash if the balance in the loan account is more than 20,000 at the time of repayment. The acceptance or repayment can be made in cash as long as the balance in the loan account does not exceed the threshold of twenty thousand rupees.
The restrictions in respect of loans are not applicable for transactions with bank, government, Government Company or corporation and other entities if specified by the government. Your home loan will not get covered under these restrictions and you can repay your home loan in cash beyond twenty thousand rupees.
# Restrictions in respect of certain deductions available from your income: In respect of certain payments for which you are eligible to claim deduction from your taxable income, the tax laws have some ceiling for payment in cash. Deduction under Section 80D is not admissible if the premium for health insurance policy is made in cash. However, payment for preventive health check, for which there is a sub limit of Rs 5,000 under Section 80D, can be made in cash. The restrictions of cash payment will also apply in case of deduction under the same section for medical expenses for a senior citizen who does not have health insurance.
Likewise, claims for certain deductions for donations under Section 80G cannot be made if a donation beyond Rs 2,000 is made in cash. The restriction of Rs 2,000 is applicable for each donation and not for all donations in aggregate.
# Blanket restrictions on acceptance of money beyond Rs 2 lakh: The tax laws have one more all pervasive restrictions under Section 269ST whereby a blanket restriction has been placed on receipt of money by any person for an amount of Rs 2 lakh and above. This restriction is applicable to the recipient and not to the payer. The restriction is applicable in respect of receipt of money for each occasion or for each transaction and not necessarily for aggregate of payments in a single day.
This provision has been brought in to curb the use of black money on various occasions like marriage, travel etc. and for which no deduction is claimed by the payer under the tax laws. For example, a caterer cannot accept Rs 2 lakh and more in aggregate for marriage reception form one person whether on a single day or over the period. Likewise, though there are no restrictions on receiving payment for sale of anything like gold jewellery, house or a plot of land etc. in general, but if the value of a single transaction is more than Rs 2 lakh, the seller cannot receive more than two lakh rupees either in full or in part for such transactions.
Likewise you cannot receive any gift beyond Rs 2 lakh in cash even in cases where the gifts are not treated as your income such as gifts received at the time of your marriage or from specified relatives. In case you receive payment in contravention of the above provision, the income tax officer can levy a penalty equal to the amount of money accepted in cash. Please note that there are no penal consequences for the person who is paying such money. The restriction of Rs 10,000 as discussed above is applicable for the person who wishes to claim it as business expenditure.
I am sure the information discussed above will be useful to you in preventing unpermitted cash transactions and, thus, avoid penal consequences.
(The writer is Chief Editor, ApnaPaisa, and can be reached at Jainbalwant@gmail.com)