In an effort to enhance transparency and combat illicit financial activities such as money laundering and tax evasion, the Indian Income Tax Act has laid down stringent regulations regarding cash transactions. These rules, aimed at monitoring large cash flows within the economy, are crucial for both individuals and businesses to understand and adhere to. Here’s a detailed exploration of the cash transaction limits and the taxation rules associated with them in India.
Understanding Cash Deposit Limits
Savings Account Regulations
For individuals, the act of depositing cash into savings accounts is monitored closely. When cash deposits reach or exceed INR 10 lakh within a fiscal year, the transaction must be reported to the tax authorities. This measure is designed to prevent untaxed money from entering the financial system unnoticed.
Current Account Considerations
Businesses operating through current accounts face a higher threshold, with a reporting requirement set at INR 50 lakh. This difference acknowledges the larger volume of transactions typically conducted by businesses. It’s critical to note that while these deposits are not immediately taxable, banks are mandated to report any transactions above these limits to the Income Tax Department.
Tax Deductions at Source (TDS) on Withdrawals
Section 194N
This section specifies that cash withdrawals exceeding INR 1 crore within a fiscal year are subject to a 2% TDS. For those who have not filed income tax returns for the past three years, the TDS rate is 2% for withdrawals over INR 20 lakh and 5% for withdrawals exceeding INR 1 crore. Importantly, the deducted TDS can be credited against the taxpayer’s income tax obligations.
Cash Transaction Restrictions
Sections 269ST, 269SS, and 269T
- Section 269ST imposes penalties for receiving INR 2 lakh or more in cash in a single transaction or related transactions within a year. This is apart from TDS on bank withdrawals exceeding set limits.
- Sections 269SS and 269T deal with cash loans, stating that accepting or repaying loans in cash over INR 20,000 could result in penalties equal to the loan amount.
Taxation of Cash Deposits
Financial institutions play a pivotal role in ensuring compliance with these regulations by reporting significant cash deposits to the authorities. It’s also vital for individuals and businesses to be mindful of Sections 44AD/44ADA when declaring business turnover to avoid unnecessary penalties.
Additional Cash Transaction Limits
Beyond savings and current accounts, there are specific limits for other transactions:
- Cash Deposit Limit in Current Account: Varies by bank but is generally higher to accommodate business needs.
- Cash Withdrawal Limit: Aimed at preventing illegal activities by ensuring large withdrawals are reported.
- Cash Gift Limit: Regulates the amount of cash gifts one can give or receive without attracting taxes.
- Fixed Deposit Limit: Dictates the maximum amount that can be deposited in a fixed deposit account.
- Credit Card Bill Payment Limit: Imposes restrictions on the amount that can be paid in cash towards credit card bills.
- Real Estate Transactions Limit: Enforces limits on cash payments in real estate transactions to promote transparency.
Real Estate Specifics
For real estate transactions, it’s illegal to purchase property entirely in cash if the amount exceeds INR 20,000. This regulation is part of a broader effort to clamp down on black money in the sector. However, it’s permissible to record cash payments in the sale deed, provided they do not surpass this limit.