If you make these transactions in cash you will not get deductions/allowance as per Income Tax Act.

In our Indian economy, cash transactions have always played a significant role and also a reason for the buildup of black money.  Our Government has recently initiated various measures to curb cash transactions and boost digital payments. Here in this article, we are discussing at the cash transactions limit and allowance/disallowance Under the income Income-tax Act.

Followings are the situations in which you can not use Cash as per Income Tax Act:-

(1.) Expenditure above Rs.10,000/- disallowed u/s 40A(3)

As per Section 40A(3) of the Income-tax Act, if any payment of any expenditure of over Rs.10,000 is made in cash, then the expenditure will be disallowed under the Income Tax Act. Hence, it is necessary for all taxpayers to make any payment of the expense over Rs.10,000 through banking channels like debit card, account transfer, cheque or demand draft.

(2.) Donation above Rs. 2,000/- disallowed u/s 80G

As per the provisions of section 80G, deduction under Chapter VIA of income tax act is not allowed if the donation is made of any sum exceeding Rs. 2,000/-, in cash. So, if you want 80G deduction is allowed under Chapter VIA of income tax act from Gross Total Income then Donation should be paid through banking channels exceeding Rs. 2,000/-

(3.) Deduction not allowed of Health Insurance Premium u/s 80D

As per the provisions of section 80D deduction under Chapter VIA is allowed only if premium is paid through banking channels and there is an exception payment for preventive health check-up can be made in cash upto Rs. 5000/-.cash transactions in Preventive health check-up is allowed.

(4.) Acceptance of Cash Loan or deposits more than Rs. 20,000/- u/s 269SS

As per provisions of Section 269SS, a taxpayer can not taking/accepting loans or deposits or a sum of more than Rs.20,000/- in cash. All loans and deposits of more than Rs.20,000/- must always be taken through a banking channel.

Following are the some exception where Section 269SS of the Income Tax Act not applicable when accepting/taking loan or deposit from a person or entity mentioned below:

  1. Government;
  2. Any banking company, post office saving bank or co-operative bank;
  3. Any corporation established by a Central, State or Provincial Act,
  4. Any Government company as defined in clause (45) of section 2 of the Companies Act, 2013
  5. An institution, association or body or class of institutions, associations or bodies notified by Central Government in the official gazette.

Note:- if the person involves in sec 269SS both having agricultural income and neither have any other income taxable under the Income Tax Act, then the provisions of Section 269SS will not apply.

(5.) Repayment of Cash Loan, deposits more than Rs. 20,000/- u/s 269T

As per provisions of Section 269T that any branch of a banking company or a co-operative society, firm or Individual person cannot repay any loan or deposit otherwise than by an account payee cheque or account payee bank draft drawn in the name of the person, who has made the loan or deposit, if:

  • The amount of the loan or deposit together with interest is Rs. 20,000/- or more; or
  • The aggregate amount of loans or deposits held by such person, either in his name or jointly with another person on the date of such repayment together with interest is Rs. 20,000/- or more.

Following are some exception where Section 269T of the Income Tax Act not applicable when the loan is repaid or deposit taken or accepted from below mentioned person:-

  1. Government;
  2. Any banking company, post office saving bank or co-operative bank;
  3. Any corporation established by a Central, State or Provincial Act,
  4. Any Government company as defined in clause (45) of section 2 of the Companies Act, 2013
  5. An institution, association or body or class of institutions, associations or bodies notified by Central Government in the official gazette.
(6.) Not any person can receive an amount of Rs.2 Lakhs or more in cash

As per provisions of section 269ST of income tax act, no person can receive an amount of Rs. 2 Lakhs or more in cash:

  • In aggregate from a person in a day;
  • In respect of a single transaction; or
  • In respect of transactions relating to one event or occasion from a person.

Provisions of Section 269ST are not applicable when cash of more than Rs. 2 lakhs is received from the Government, Any banking company, post office saving bank or co-operative bank, An institution, association or body or class of institutions, associations or bodies notified by Central Government in its official gazette.

(7.) Disallowance of Capital Assets of More then Rs.10,000/- and Depreciation

As per provisions of section 43 of Income Tax Act, if payment of more than Rs.10,000/- is made by a taxpayer for the purchase of an asset by cash, the expenditure would be ignored for the purposes of determination of actual cost of the asset and consequently depreciation u/s 32 and investment allowance u/s 32AD pertaining to such payment cannot be claimed. Hence, it is very important for all taxpayers to acquire assets to make all payments to the seller through banking channels.

(8.) Disallowance of Donation paid to Political Party u/s 80GGC

As per provisions of section 80GGC of income Tax Act, If any person (other than Indian Co.) contributed any sum by way of cash to any political party or an electoral trust then the same is not allowed as deduction while computing taxable income.

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