Cash transactions: Know the rules to avoid the taxman's ire

The government has placed certain restrictions on cash transactions in order to keep a check on black money.

According to the Income Tax laws, a daily limit of Rs 10,000 has been prescribed for people engaged in business or profession. Beyond this amount, payments in cash cannot be made. The expenses paid in cash beyond this amount in a single day to a single person are not allowed any tax deduction.

However, there is one exception where you can pay Rs 35,000 to a transporter in a day.

Repayment or acceptance of loan amount of more than 20,000 will attract penalty

Under the Income Tax Laws, you cannot repay or accept any loan beyond Rs 20,000 as in case of default, the income tax officer can levy a penalty of an amount equal to the loan amount. You can repay or accept the loan amount in cash until it doesn’t exceed Rs 20,000. It is imperative to know here that a home loan doesn’t come under this law.

Cannot accept cash above Rs 2 lakh

Under Section 269ST, a blanket restriction has been placed on the recipient on acceptance of cash for an amount of Rs 2 lakh and above. This law is specially made to curb the use of black money. Even gifts of Rs 2 lakh or beyond also barred under this section. Although, there are no penal sections for such transactions made in cash.

Deductions under Section 80D

Deduction under Section 80D is not allowed if the health insurance premium is paid in cash. However, Rs 5,000 for a preventive health check-up can be paid in cash.

Under Section 80G, you cannot claim the deduction for donation if the donation amount beyond Rs 2,000 and paid in cash.

Other high-value transactions that may come under the radar of I-T Department

– Deposit of cash aggregating to Rs 10 lakh or more in any savings account

– Payment in cash aggregating to Rs 10 lakh or more in a year for the purchase of DD, pay order, bankers cheque, or any pre-paid instrument by RBI

– Cash deposit or withdrawal in one or more current account for more than Rs 50 lakh

– Credit card transactions of Rs 1 lakh or more paid in cash

(Inputs by Tax Expert, Gauri Chadha)