Beware of heavy penalties! Key cash transaction limits you must follow

If one is conducting cash transactions frequently, one should be more vigilant. Large value cash transactions are under the vigilance of the Income Tax Department, and if one does not follow the limit prescribed under the Income Tax Act of 1961, he/she can face penalties up to 100 percent of the value of the transaction. The measures are aimed to promote electronic payment, prevent evasion of tax, and improve the transparency of money.

Cash transaction limits and penalties under income tax laws

1. Section 269SS – Prohibition on Acceptance of Cash Loans and Cash Credits
Cash deposits or borrowals of Rs 20,000 or more are banned.
The chapter also covers advances made in transactions of immovable property.

Exemptions: 

• Government banks, postal savings, and cooperative banks.
• Government-notified corporations and institutions.
• Agricultural income-handling farmers only.
• Penalty: 100% of cash value (under Section 271D).

2. Section 269ST – Acceptance of cash amounts over Rs 2 Lakh

A person cannot be given more than Rs 2 lakh in one day in cash by a single source.
The principle is applicable even if the money is paid for one occasion or purpose, i.e., weddings, donations, or fees.

Exemptions: 

Government, banks, post offices and other offices notified.

• Penalty: 100% of the value of cash received (under Section 271DA).

3. Section 269T – Restriction on repayment in cash of deposits and loans
Repayment of a loan or cash deposit over Rs 20,000 must be done by banks and not in cash.

Exceptions:

• Accounts held by the government, banking organizations, and postal saving services.
• Fine: 100% of the repayment amount (under Section 271E).

4. Section 269SU requires mandatory electronic payment by big business.
Organisations with a turnover of more than Rs 50 crore must offer customers an electronic payment system like UPI, debit/credit cards, or digital wallets. Penalty: Rs 5,000 per day (under Section 271DB).

Why these rules are introduced

The government has enacted these measures to: Avoid illegal money transactions and secret bargains. Encourage electronic transactions to ensure transparency of funds. Ensuring tax conformity and preventing fraud.

Key takeaway

Go Digital to Escape Penalties For compliance, always execute big transactions through bank transfers, UPI, debit/credit cards, or digital wallets.

Failure to do so can attract hefty penalties and legal action.