Restrictions for cash based transactions under Income Tax act
There are several restrictions on payment in cash and receipt of money in cash. While some of these restrictions apply to those who are engaged in business or profession, some apply to everyone.
No person can accept any loan or deposit specified sum of Rs 20,000 or more otherwise than by way of an account payee cheque or an account payee draft or electronic clearing system through a bank account
Restrictions on businessmen, professionals: If you are carrying on a business or profession, then as per tax laws, you have a prescribed daily limit of Rs 10,000 beyond which payments in cash are not allowed for any expenditure to a single person. If you fail to comply, the expenses paid in cash will not be eligible for tax deduction. However, you can pay up to Rs 35,000 to a transporter in a day.
Restrictions applicable to everyone:
1. Loan acceptance, repayment: As per Income Tax Act, you are not allowed to accept or repay any loan beyond the initial limit of Rs 20,000. This threshold is not applicable for every transaction 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. Also, repayment cannot be made in cash if the balance in the loan account is more than Rs 20,000 at the time of repayment.
No person can accept any loan or deposit or specified sum of Rs 20,000 or more otherwise than by way of an account payee cheque or an account payee draft or use of electronic clearing system through a bank account. The limit of Rs 20,000 will also apply to a case even if on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from such depositor is remaining unpaid and such unpaid amount along with the loan or deposit to be accepted, exceeds the threshold.
2. Restrictions in respect to deductions: There has been ceiling for payment in cash in respect of certain payments for which you are eligible to claim a tax deduction. Deduction under Section 80D is not admissible if the premium for a health insurance policy is made in cash. Claims for certain deductions for donations under Section 80G cannot be made if a donation beyond Rs 2,000 is made in cash.
3. Restrictions on acceptance of money: As per provision under Section 269ST whereby a blanket restriction has been placed on receipt of money for an amount of Rs 2 lakh and above. This restriction is applicable to the recipient and not to the payer. It is applicable in respect of receipt of money for each occasion or for each transaction and not for aggregate of payments in a day.