What are the restrictions on money transactions underneath the income tax guidelines?

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To check on use of cash in high value transactions, the government has put a blanket ban on acceptance of cash beyond 2 lakhs by any person under Section 269ST.

In order to control the use and circulation of illicit money, successive governments have increasingly restricted cash transactions. Here we address various restrictions on cash transactions under the Income Tax Act.

Non-admission of self-employed persons for business expenses with cash payments: Self-employed taxpayers cannot claim expenses beyond Rs. 10,000 / – when paying in cash to one person on a single day. For payments to a carrier, the law provides a higher threshold of Rs. 35,000 / -. This threshold applies not only to revenue expenses, but also to payments for the acquisition of a failed fixed asset where you cannot capitalize that expense and charge a write-off on those cash paid expenses.

Non-admission of all taxpayers for amounts paid in cash: Tax laws only allow you to make a certain deduction if paid in a way other than cash.

First, the § 80 D deduction is only available in relation to the health insurance premium paid if it was paid in a way other than cash. Even for seniors who do not have health insurance and can claim medical costs today, these restrictions apply. Even small amounts of medication purchased in cash cannot be deducted under Section 80D. However, you can claim a deduction of up to Rs. / 5,000 / – for your family and parents each for cash paid for the medical check-up under Section 80D, within the maximum amount permitted under Section 80D.

For monetary donations, you can only claim the deduction under Section 80G if the amount of each donation does not exceed Rs. 2,000 / -. No deduction is possible for donations that exceed this threshold if this is made in cash.

Restrictions on accepting and repaying loans: Not only for paying expenses but also tax laws have restricted the acceptance and repayment of loans in excess of Rs. 20,000. If you accept or repay a loan, the tax authorities may, in violation of the law, impose a fine equal to the amount of the loan accepted or repaid in cash. It is worth estimating that this threshold of Rs. 20,000 / – is not taken into account in relation to any loan transaction but applies to any assumption that results in the balance on the loan account exceeding Rs. 20,000 / or for each repayment of a loan if the balance exceeds Rs. 20,000 / – at the time of such repayment, regardless of the amount of the individual transaction of acceptance or repayment. However, your transactions with banks, governments, government companies or corporations and other government-appointed companies are exempt from this rule. In the event that you pay your EMIs for home loans in cash, this penalty provision does not apply.

Limitations on Receiving Cash by an Individual: To validate the use of cash in high value transactions, the government has imposed a blanket prohibition on accepting cash over 2 lakhs by any one under Section 269ST. For any occasion such as marriage, birthday party, etc., or any transaction such as the sale of gold, real estate, vacation package, home renovation / furnishing, etc., this restriction applies. It may happen that the payer does not claim a tax deduction, but the recipient’s limitation still applies.

Unlike business expenses, the limit here applies to the entire transaction and not necessarily to the payment in a single day. For example, a caterer cannot accept two or more lakhs in total for receiving a marriage from a single payer, whether in a single day or spread over several days. The law generally has no restrictions on the payment of cash for the transaction of buying / selling jewelry or immovable property, etc. However, if the value of a single transaction exceeds two lakhs, the seller is prohibited from accepting cash in excess of two lakhs of such Transactions. Even a gift from a single donor cannot accept more than two lakhs in cash. Anyone who, contrary to this provision, accepts cash in excess of two lakhs can be punished with a penalty equal to the amount of the cash received. It is interesting to note that under these provisions the payer bears no responsibility.

The author is a tax and investment expert and can be reached at jainbalwant@gmail.com

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