Cash transactions have consistently been a significant contributor to the growth of black money in the Indian economy. Read this blog to know more.
Money transfers have consistently been a major factor in the development of black money in the Indian economy. The government recently started several initiatives to reduce cash transaction limit and increase digital payments. Throughout this article, we examine the Income Tax Act’s cash transaction as well as the consequences of exceeding the limit.
Cash Transaction Limit: Section 269ST
A new Section 269ST has been added to the Income Tax Act as a result of the measures taken by the Finance Act 2017 to curb black money. A cash transaction limit was restricted by Section 269ST and was only allowed to be worth up to Rs. 2 Lakh per day. No one will receive any sum of ₹2,00,000 or more, according to Section 269ST.
- In total from an individual in a day
- About a single purchase
- About cash transaction limit from a person regarding a single event or occasion.
However, it has been made clear by the Central Board of Direct Taxes (CBDT) that cash withdrawal limits from banks and post offices are exempt. Consequently, the following situations are exempt from the requirements of section 269ST:
- Money is received through the use of an electronic clearing system (ECS) out through a bank account, an account payee bank draught, or a cheque made payable to an account payee.
- any payment received from the federal government, a bank, a post office savings bank, or a cooperative bank.
- Cash transaction limit that fall under the definition of “nature” in Section 269ST.
- Such additional individuals, groups of individuals, or receipts as the Central Govt may specify by notification in the Official Gazette.
Post Office Withdrawal
- Department of India-operated post offices with the help of an ATM, Post enables withdrawals from Post Office savings accounts.
- A post office or ATM will only allow you to withdraw a total of ₹25,000 in cash in a single day, with a maximum of ₹10,000 per withdrawal.
- Five Cash transaction limits, both financial and non-financial, are allowed at no cost each month by the post office. Further than the free transactions, there is a GST-compliant fee of ₹20.
- It is acceptable to withdraw money from ATMs of other banks; in metro areas, this is limited to three free withdrawals; in non-metro areas, this is limited to five withdrawals. For transactions above those that are free, a fee of ₹20 plus GST is imposed.
Calculate your taxes easily with our income tax calculator ay 2023-24. Visit us online to use our online tax calculator today!
Cash Withdrawal Limit in Bank
The deposited amount may be taken out of both the savings account and the bank account using a checkbook, a withdrawal slip, or an automated teller machine that accepts debit cards. The cash withdrawal limit from the bank varies between different banks and is also contingent upon the type of card being used.
It varies depending on the bank from ₹10,000 to ₹50,000 per day. The State Bank of India did, however, provide the transactional information listed below.
- The majority of banks have set a cash transaction limit on checkbook withdrawals at 60 per half-year.
- The maximum amount that can be deducted from the current account each week is ₹1,000,000, while a total of ₹ 24,000 can be withdrawn from the savings account each week.
- For salary accounts, ATM withdrawals allow a daily limit of ₹10,000 and unlimited free transactions, compared to 3 withdrawals from other ATMs that incur a fee of ₹20 plus GST per month.
Cash Transaction Limit in Income Tax
The principal sections of income tax that deal with the cash transaction are as follows:
- Sections 40A(3) and 43 – Affects Cash Payment
- Concerns Cash Receipts: Sections 269SS and 269ST
- Reimbursement of Certain Loans and Deposits is Affected by Section 269T
Income Tax Section 40A(3)
The Income Tax Act’s Section 40A(3) addresses the maximum amount of cash that can be exchanged in a cash transaction limit. According to Section 40A(3), the Tax Act of India will disallow any expenditure over ₹10,000 that is paid for in cash. All taxpayers must use banking methods like a debit, account transfer, check, or demand draft when making any payments for expenses that total more than ₹10,000.
Income Tax Section 43
If a taxpayer spends more than ₹10,000 to purchase an asset in cash, section 43 of the Income Tax Act states that the expenditure is disregarded when calculating the asset’s actual cost. All taxpayers who purchase assets must send the seller all payments through banking channels.
Income Tax Section 269SS
A taxpayer is not permitted to accept or take loans, deposits, or payments in cash totaling more than ₹20,000 under Section 269SS. More than ₹20,000 in loans or deposits must always be obtained through a banking channel.
To the contrary, when accepting a loan or deposit from one of the following individuals or organizations, Section 269SS of something like the Income Tax Act is indeed not applicable:
- The Government
- Any bank, co-operative bank, or post office savings institution;
- Any business that was created by a federal, state, or provincial law
- Any government-related organization as defined by clause (45) of section 2 of the Companies Act of 2013.
- a group of institutions, organizations, or bodies that the central government has officially announced inside the official gazette.
Last but not least, the clauses of Section 269SS would not apply if both the person making the credit or deposit and the person accepting it have agricultural income nor had any other income subject to taxation under the Income Tax Act.
Section 269ST of Income Tax Act: Cash Receipt Limit
Section 269ST of the Income Tax Act stipulates that no individual can receive an amount of ₹2 Lakhs or more in cash under the following conditions:
- From a person in aggregate in a day
- In respect of a single transaction
- In respect of transactions related to one event or occasion from a person.
However, these provisions do not apply when cash exceeding ₹2 lakhs is received from:
- Government entities,
- Banking companies, post office savings banks, or cooperative banks,
- Institutions, associations, or bodies notified by the Central Government in its official gazette.
Section 269SS-Related Fines
A penalty equivalent to the value of the loan, deposit, or specified total amount accepted could be imposed if Section 269SS requirements are not followed.
Act on Income Taxes, Section 269ST
No person is permitted to receive in cash an amount equal to ₹2 Lakh or more, according to Section 269ST of said Tax Act of India.
- In regards to a single transaction,
- in total from a person in a day,
- in regards to transactions from a person about a single event or occasion.
When receiving cash from any of the following sources totaling more than ₹2 lakh, Section 269ST’s provisions are not applicable:
- Administration
- any bank, co-operative bank, or post office savings institution;
- an organization, association, body, or group of organizations that the Central Government has announced within the official gazette.
Section 269ST Penalty
Following section 271DA, a fine equal to the value of the receipt is due if the requirements of section 269ST are not followed.
Income Tax Act, Section 269T
According to Section 269T, a branch of a bank, a cooperative society, a business, or another individual is prohibited from repaying a loan or deposit in any other way than with a check or bank draft made out in the borrower’s name. This prohibition applies in the following situations:
- The line of credit or deposit is at least ₹20,000 when interest is added, or
- The sum of all loans or deposits that person has on hand, whether they are in his name alone or together with another person, is at least ₹20,000 when interest is added.
Section 269T Penalty
According to section 271E, a penalty equal to the loan or deposit amount repaid is due in cases where the requirements of section 269T are not met.
How Much Cash Can Be Withdrawn From Bank
The cash withdrawal limit in a bank depends on various factors, including the type of account you hold and your banking history. In India, the cash transaction limit under income tax regulations typically ranges between Rs. 300 and Rs. 1,000 per day for ATM withdrawals, while the teller withdrawal limit can be higher, varying by the bank. For instance, the Bank of India has a teller withdrawal limit of Rs. 50,000 per day.
If you require a withdrawal exceeding the daily cash withdrawal limit in a bank, you can usually do so by visiting a bank branch and consulting with a teller. However, the bank may necessitate identification and inquire about the reason for the substantial cash withdrawal.
It’s worth noting that the Reserve Bank of India (RBI) mandates that banks report all cash withdrawals of Rs. 10 lakhs and above to combat money laundering and other illicit activities.
Several factors can influence the maximum amount of cash you can withdraw from a bank:
- Type of Account: Savings accounts generally have lower withdrawal limits compared to checking accounts.
- Banking History: If you possess a positive banking history, the bank might be more inclined to permit larger cash withdrawals.
- Income: The bank may also consider your income when establishing your withdrawal limit.
- Economic Conditions: During periods of economic uncertainty, banks may impose stricter withdrawal limits to manage risk effectively.
Exceptions to Cash Transaction Limit
The Income Tax Act recognizes certain scenarios where cash transaction are necessary. Here are a few instances:
- Payments to Designated Entities: Rule 6DD provides exceptions for specific circumstances, such as payments to government entities, banks, or in remote areas lacking banking facilities
- Small Transactions: Routine purchases of minimal value (under ₹ 10,000) are not constrained by the Act.
Some Illustrations for a Better Understanding
Mr. Patel sells his car to Mr. Kumar for ₹1,00,000. According to Section 269ST, Mr. Kumar cannot pay Mr. Patel in cash for the entire amount. If Mr. Kumar pays ₹70,000 in cash and the remaining ₹30,000 through a bank transfer or other electronic means, the transaction complies with the cash transaction limit regulations.
Conclusion
Get in touch with Vakilsearch‘s legal professionals if you require any assistance or if you would like more information about Cash Transaction limit: Maximum Amount, Penalties, or Income Tax in India.
