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The Income Tax Department has strict rules on cash transactions with penalties. CA Gaurav Garg explains cases like loans over Rs 20,000 and gifts above Rs 2 lakh
Under Section 269ST, accepting less than Rs 2 lakh in cash from a person in a day is valid. (Representative/Shutterstock)
The Income Tax Department has tightened rules on cash transactions, with violations attracting hefty penalties under Sections 269SS, 269ST, and 269T. Many unknowingly breach these provisions, risking fines of several lakhs.
To clarify what’s allowed and what’s not, News18 spoke to CA Gaurav Garg, Partner at SGPM & Associates, who explained the key scenarios in a Q&A format.
Question 1: I have a job. A colleague offers me Rs 30,000 in cash to repair my car. Can I accept the cash?
Answer: No. Under Section 269SS of the Income Tax Act, 1961, it is prohibited to accept a loan, deposit, or fixed amount of Rs 20,000 or more in cash. These can only be accepted through bank methods (cheque, draft, online transfer). Accepting a loan in cash can attract a penalty of the same amount under Section 271D, i.e., Rs 30,000.
Question 2: I run a small bakery business. A supplier offers me a cash loan of Rs 50,000 to buy an oven. Is this allowed?
Answer: No. Under Section 269SS, taking a business loan of Rs 20,000 or more in cash is also prohibited. You must accept the loan amount through bank transfer or UPI; otherwise, you may be fined Rs 50,000 under Section 271D of the Income Tax Act.
Question 3: My father (a senior citizen) takes Rs 25,000 in cash from a friend for hospital expenses. Is this valid?
Answer: No, unless you can prove “good reason”. Emergencies and lack of banking facilities are included in this.
Question 4: I am a housewife. My sister gives me Rs 40,000 in cash on my birthday. Is this valid?
Answer: Yes. A gift is not a loan or deposit. However, ensure that it is less than Rs 2 lakh, as taking cash of Rs 2 lakh or more is prohibited under Section 269ST. Keep proof of the gift.
Question 5: I am employed. I sell my old laptop for Rs 75,000 in cash. Is there any problem?
Answer: No. Under Section 269ST, accepting less than Rs 2 lakh in cash from a person in a day is valid. This is not considered a loan, so Section 269SS does not apply.
Question 6: I run a catering business and accept Rs 2.5 lakh in cash for a wedding. Is this valid?
Answer: No. Under Section 269ST, accepting Rs 2 lakh or more in cash from a person in a day, in a single transaction, or for an event is prohibited. If you do so, you will be fined the same amount under Section 271DA, i.e., Rs 2.5 lakh.
Question 7: I am a housewife and sell handmade jewellery for Rs 2.2 lakh in cash. Is this valid?
Answer: No. Under Section 269ST, accepting Rs 2 lakh or more in cash is prohibited. Violation of this rule will attract a fine of Rs 2.2 lakh under Section 271DA.
Question 8: I am employed. Can I return a loan of Rs 25,000 to my uncle in cash?
Answer: No. Under Section 269T, returning a loan of Rs 20,000 or more in cash is prohibited. Payment must be made through the bank. Violation will attract a fine of Rs 25,000 under Section 271E.
Question 9: My elderly parents return Rs 30,000 in cash to their friend. Is this valid?
Answer: No, unless they are exempted (for example, if both have income solely from agriculture). Income tax is not levied on agricultural income, so the rules do not apply in this case. Otherwise, a penalty of Rs 30,000 will be imposed under Section 271E.
Question 10: If I withdraw Rs 3 lakh cash from my bank account, will Section 269ST apply?
Answer: No. Section 269ST applies only to accepting cash from someone, not to withdrawing your own money from the bank.
Question 11: If my parents gift me Rs 2.5 lakh cash for my studies, will there be a penalty?
Answer: Gifts received from parents are exempt from income tax (Section 56(2)(x)), but Section 269ST sets a limit on accepting cash. Accepting more than Rs 2 lakh in cash will attract a penalty, even if it is a gift. Therefore, take the gift through bank transfer, cheque or online methods.
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