It is a well-known truth that people tend to find ways to evade tax, which leads to the collection of illegal income. Government has to gear such tax evasion tactics and bring all the funds under its umbrella. The Indian income tax act has numerous provisions for tracking unexplained cash credit and investments.
Unexplained cash credit It is treated as income in the year it is obtained and taxed at a flat rate of 60% without granting any benefit of the fundamental exemption limit, disregarding the tax slab. There is a 25% surcharge and 6% penalty, and the final tax rate comes to 83.25% (including cess). There is no advantage of deduction/allowance, and no loss can be written off against similar unexplained cash credit, which is considered income. No imposition of penalty is there if unexplained cash credit is already counted with the return of earnings and tax on the same is paid on or before the end of the financial year.
Limit for cash transactions- section 269ST The finance act 2017 took measures to limit illegal income, and as a result of these actions, a new section 269ST was inserted in the income tax act. Section 269ST imposed limitations on a cash transaction to Rs.2, 00,000 per day. The section mentioned above says that no person shall receive an amount of rs 2 lakh or more:
In whole from a person in a day; or
r.t single deals; or
r.t deals relating to one event or occasion from a person.
Thus, the central board of direct taxes has clarified that this cash pullout limit does not appeal for withdrawals from banks and post offices. Therefore the terms of section 269ST will not apply to:
Cash received through an A/P cheque or an A/P bank draft or use of an electronic clearing system across a bank account.
Any receipt by the government, banking company, post office savings bank or co-operative bank.
Deals of nature are referred to in section 269SS.
Such other individuals or class of persons or receipts, which the government may, by notification official gazette, specify.
Cash transactions control under the Income Tax Act The following are the major income tax sections that are concerned to cash transaction control:
Section 40A(3) and section 43 – concerns to a cash payment
Section 269SS and section 269ST- pertains to cash receipts
Section 269T – pertains to the repayment of certain loans/ deposits
Section 40A (3) of the Income Tax Act The above section of the income tax act relates to cash transaction limits for expenditure made in cash. Under this section, if any cash payment is made over Rs.10, 000, then such cost will be dismissed under the income tax act. Hence, it is essential for all taxpayers to make any remittance for the cost over Rs.10, 000 across banking channels like debit card, account transfer, cheque or demand draft.
Section 43 of the income Tax Act Under the section mentioned above of the income tax act, if remittance greater than Rs.10, 000 is made by a taxpayer for the accession of an asset by cash, the expenditure would be ignored to determine the actual cost of the asset. Hence, it is essential for all taxpayers acquiring assets to make all payments to the seller through banking channels.
Section 269SS of the Income tax act The section mentioned above limits a taxpayer from accepting loans, deposits or a sum greater than rs.20, 000 in cash. All loans and deposits greater than Rs.20, 000 should always be received across a banking passage. Section 269SS of the income tax act is, although, not applicable when accepting/ taking a loan or deposit from an individual or organizations indicated below:
Any banking firm, post office saving bank or co-operative bank;
Any corporation entrenched by a central, state or provincial act
Any government firm as explained in clause(45) of section 2 of the companies act, 2013
An institution, corporation or body or class of institutions, associations or bodies apprised by central government in the formal gazette.
Eventually, assume the person from whom the loan or deposit is acquired and the person by whom the loan or deposit is received have neither agricultural income nor have any taxable income under Income Tax Act. In that case, the terms of section 269SS will not appeal.
Penalty under section 269SS Failure to comply with terms of section 269SS could lead to a penalty equal to the amount of loan or deposit or stated sum accepted.
Section 269ST of the income tax act This act states that no person can receive an amount of Rs2 lakh or more in cash:
In whole from a person in a day;
r.t to single deal transactions; or
r.t transactions relating to one event/occasion from an individual.
Provisions of Section 269ST are not applicable when cash of more than Rs.2, 00,000 is received from the following persons:
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.
Penalty under section 269ST According to section 271DA, in case of failure to follow the terms of section 269ST, a mulct amount equal to the amount of receipt is payable.
Section 269T of the income tax act Section 269T allows that any branch of a banking firm or a co-operative society, firm or another individual cannot pay back any loan or deposit otherwise than by an account payee cheque or account payee bank draft drawn in the name of the individual who has made the loan or deposit, if:
The sum of the loan or deposit all together with interest is INR 20.000 or more; or
The total amount of loans or deposits held by such an individual, either in his name or jointly with another individual on the date of such repayment together with interest, is INR 20,000 or more.
Terms of section 269T are not applicable when the loan is repaid or deposit taken or accepted from below mentioned persons:
Any banking agency, post office saving bank or co-operative bank;
Any company established by a central, state or provincial act
Any government firm as explained in clause (45) of section 2 of the companies act, 2013
An institution, corporation or body or class of institutions, associations or bodies alerted by the central government in the formal gazette.
Retribution under section 269T According to section 271E, in case of failure to follow the terms of section 269T, a mulct amount equal to the amount of loan or deposit remunerated is due.
At Itseki Mercurius India, we assist our clients in dealing with various income tax compliances, including some tax assessments, TDS returns, ITR filings, tax advisory and other related services by providing them adequate support and guidance from our end. If you have any questions or wish to know more about tax treatment for cash transactions, kindly contact us.