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Income Tax: Cash Transactions Above This Limit Will Attract 100% Penalty – Know the Latest Tax Rules

To promote digital payments and prevent tax evasion, the government has imposed strict rules on cash transactions. If a person exceeds the permitted cash transaction limit, they will have to pay a penalty equal to the amount transacted. The Income Tax Department is closely monitoring large cash dealings, making it essential for individuals and businesses to follow the tax regulations to avoid legal trouble.

What Are the Limits on Cash Transactions?

According to the Income Tax Act, 1961, there are strict restrictions on cash dealings. If you exceed these limits, you may face hefty penalties. Let’s explore the key sections of the Income Tax Act related to cash transactions and their penalties.

1. Section 269SS: Cash Loan or Deposit Above ₹20,000 is Prohibited

As per Section 269SS, no individual or business can accept a loan, deposit, or specified sum in cash if the amount exceeds ₹20,000. The main objective is to ensure transparency in financial transactions and prevent black money circulation.

Who is Exempt?

  • Government organizations
  • Banks, post office savings banks, and cooperative banks
  • Government-owned companies
  • Notified institutions and associations

Penalty for Violation

If this rule is violated, the entire amount accepted in cash will be charged as a penalty under Section 271D.

2. Section 269ST: Ban on Receiving More Than ₹2 Lakh in Cash

Section 269ST prohibits any person from receiving ₹2 lakh or more in cash from a single person in a single day.

When Does This Rule Apply?

  • A person cannot receive more than ₹2 lakh in cash from another person in a single day.
  • For a single transaction, an amount exceeding ₹2 lakh cannot be accepted in cash.
  • No person can accept more than ₹2 lakh in cash for any single event or occasion, such as a wedding or any function.

Who is Exempt?

  • Government organizations
  • Banks and post offices
  • Cooperative banks

Penalty for Violation

If this rule is not followed, a penalty equal to the amount received in cash will be levied under Section 271DA.

3. Section 269T: Repayment of Loans or Deposits Above ₹20,000 in Cash is Prohibited

This section states that loans or deposits of ₹20,000 or more cannot be repaid in cash. The repayment must be done through bank transfers, cheques, or other digital means.

Who is Exempt?

  • Government institutions
  • Banks and post offices

Penalty for Violation

Violators will have to pay a penalty equal to the amount repaid in cash under Section 271E.

4. Section 269SU: Businesses with Over ₹50 Crore Turnover Must Provide Digital Payment Options

As per Section 269SU, any business with an annual turnover exceeding ₹50 crore must offer digital payment methods like UPI, debit/credit cards, and net banking. This ensures convenience for customers and transparency in business transactions.

Penalty for Violation

Failure to comply will result in a fine of ₹5,000 per day under Section 271DB.

Why Has the Government Imposed These Rules?

The primary reasons for restricting cash transactions are:
✅ To curb tax evasion and black money circulation
✅ To promote digital transactions for better financial transparency
✅ To strengthen the banking system and reduce reliance on cash
✅ To make tax compliance easier for individuals and businesses

Conclusion: Follow the Rules, Avoid Penalties

To avoid penalties and legal issues, it is crucial to follow the Income Tax Department’s cash transaction rules. Using digital payment methods not only helps in maintaining financial transparency but also ensures safe and convenient transactions. If you are making large financial transactions, always prefer digital modes to stay compliant with tax laws.

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