The Income Tax Department urges taxpayers to avoid cash transactions as penalties equal to the cash amount may apply in specific cases. Rules under the Income Tax Act discourage cash dealings, disallow certain deductions, and impose strict penalties on cash loans, deposits, and transactions exceeding set limits. Promoting digital payments is key to compliance.
Why the Warning on Cash Transactions?
The Income Tax Department has highlighted the risks of using cash for financial transactions. A brochure released on January 2, 2025, warns taxpayers about penalties for non-compliance with cash transaction rules under the Income Tax Act, 1961.
Key Regulations on Cash Transactions
Several provisions under the Income Tax Act govern cash transactions:
- Section 269SS:
- Prohibits accepting loans, deposits, or specified sums in cash exceeding ₹20,000.
- Violations result in penalties equal to the cash amount under Section 271D.
- Section 269ST:
- Prohibits receiving cash payments exceeding ₹2 lakh in aggregate from a person, for a single transaction, or for multiple transactions related to one event.
- Violations attract penalties equal to the cash amount under Section 271DA.
- Section 269T:
- Prohibits cash repayment of loans, deposits, or advances above ₹20,000.
- Penalties equal to the repaid amount are imposed under Section 271E.
Encouraging Digital Payments
The government also mandates digital payment facilities for businesses with turnovers exceeding ₹50 crore under Section 269SU. Businesses failing to comply face a penalty of ₹5,000 per day under Section 271DB.
Understanding the Impact
These measures aim to curb tax evasion and encourage a shift toward digital transactions. Taxpayers must stay informed to avoid penalties and ensure compliance. Non-adherence can result in significant financial losses, making awareness crucial.
Conclusion
Taxpayers are encouraged to embrace digital financial systems to avoid penalties and contribute to a transparent economy. By complying with cash transaction rules, individuals and businesses can stay ahead in a rapidly digitizing financial landscape.
