Think Before You Pay: Don’t Do Cash Transactions Without Knowing the Limits!

Introduction
In today’s era of financial transparency and digital transactions, the Government of India has established strict regulations on cash transactions to curb tax evasion, black money, and illicit activities. These limits are enforced under various sections of the Income-tax Act, 1961, and are applicable to individuals, businesses, and organizations alike. Adhering to these limits is essential to avoid hefty penalties and ensure compliance with tax laws. By transitioning to digital payments and maintaining proper records, taxpayers can contribute to a more transparent and equitable financial ecosystem.

This guide provides a clear and concise overview of the key cash transaction limits in India, helping you stay informed and compliant with the law.

Here’s a summary of key cash transaction limits:

1. Cash Payment for Expenses (Section 40A(3))

• Limit: Payments exceeding ₹10,000 in cash to a single person in a day are not allowed as deductions for business expenses.
• Exception: For payments to transporters, the limit is ₹35,000.

2. Acceptance or Repayment of Loans and Deposits (Section 269SS and 269T)

• Limit: Accepting or repaying loans or deposits above ₹20,000 in cash is prohibited.
• Penalty: 100% of the loan or deposit amount.

3. Donations (Section 80G)

• Limit: Donations exceeding ₹2,000 should not be made in cash to qualify for tax deductions.

4. Cash Transactions in Property Deals (Section 269ST)

• Limit: Receiving ₹2 lakh or more in cash for a single transaction, or in aggregate from a person in a day, is prohibited.
• Penalty: Equal to the amount received.

5. Cash Payments for Capital Expenditure

• Limit: Payments exceeding ₹10,000 in cash for acquiring assets are not considered for depreciation purposes.

6. Cash Withdrawals (Section 194N)

• Limit: TDS at 2% is applicable on cash withdrawals exceeding ₹1 crore in a financial year from a bank account.

7. Cash Donations to Political Parties (Section 80GGB and 80GGC)

• Limit: Donations to political parties exceeding ₹2,000 should not be made in cash to qualify for tax deductions.

8. Cash Payments for Insurance Premiums

• Limit: Payments exceeding ₹10,000 in cash towards insurance premiums are not allowed as deductions.

9. Cash Deposits in Savings Accounts

• Limit: Deposits exceeding ₹10 lakh in a financial year may attract scrutiny.

10. Cash Deposits in Current Accounts

• Limit: Deposits exceeding ₹50 lakh in a financial year may attract scrutiny.

11. Capital Expenditure on Specified Business (Section 35AD)

• Limit: Payments exceeding ₹10,000 in cash for capital expenditure in specified businesses are not eligible for deductions.

12. Payment for Expenditure (Section 40A(3A))

• Limit: If an expense has been claimed as a deduction in a previous year on an accrual basis, and payment exceeding ₹10,000 is made in cash in a subsequent year, the payment will be deemed as income and taxed accordingly.

13. Cash Sales

• Limit: Cash sales exceeding ₹2 lakh to a single person in a day are prohibited.

14. Cash Payments for Hotel Bills and Foreign Travel

• Limit: Cash payments exceeding ₹20,000 for hotel bills or foreign travel are not allowed.

15. Cash Payments for Medical Expenses

• Limit: Cash payments exceeding ₹10,000 for medical expenses are not allowed as deductions.

16. Cash Payments for Purchase of Bank Drafts or Pay Orders

• Limit: Cash payments exceeding ₹50,000 for purchasing bank drafts or pay orders are prohibited.

17. Cash Payments for Purchase of Immovable Property

• Limit: Cash payments exceeding ₹20,000 for purchasing immovable property are prohibited.

18. Cash Payments for Purchase of Bank Fixed Deposits

• Limit: Cash payments exceeding ₹50,000 for purchasing bank fixed deposits are prohibited.

19. Cash Payments for Purchase of RBI Bonds

• Limit: Cash payments exceeding ₹50,000 for purchasing RBI bonds are prohibited.

20. Cash Payments for Purchase of Post Office Savings Instruments

• Limit: Cash payments exceeding ₹50,000 for purchasing post office savings instruments are prohibited.

21. Cash Payments for Purchase of Kisan Vikas Patra (KVP)

• Limit: Cash payments exceeding ₹50,000 for purchasing Kisan Vikas Patra are prohibited.

22. Cash Payments for Purchase of National Savings Certificates (NSC)

• Limit: Cash payments exceeding ₹50,000 for purchasing National Savings Certificates are prohibited

Conclusion
Compliance with cash transaction limits is not merely a matter of legal obligation but a step towards fostering an honest and transparent economic environment. As the world shifts towards digitization, embracing cashless transactions offers numerous benefits, including greater convenience, enhanced security, and minimized risk of penalties. Awareness and adherence to these limits safeguard you from legal complications and contribute to India’s vision of a robust and transparent financial system.

Let’s commit to responsible financial practices and play our part in building a compliant and progressive economy!