Cash Transactions Limit Under Income Tax Act, 1961

The Government of India, from time to time, has introduced many sections under Income Tax Act, 1961 to curb cash transactions and promote digital transactions.

Cash transaction limitations are intended to reduce the flow of domestic black money, which affects not just government income but also investment for constructive purposes. Because most black money is exchanged in cash, it remains unaccounted for, and a huge amount of it remains unproductive, being kept in cash or invested in low-value assets such as gold and jewellery.

Here are cash transactions limit under various sections of the Income Tax Act, 1961.


Section 40A(3)- Disallowance of Expenses

Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day has been made in cash exceeds Rs 10,000 i.e. otherwise than by an account payee cheque drawn on a bank or account payee bank draft, or use of electronic clearing system or through such other electronic mode prescribed, then no deduction shall be allowed in respect of such expenditure.

Further expenses have been incurred in one year and claimed as expenses in that year, but payment of such expenses has been made in cash in excess of Rs 10000, then the expenses claimed as expenses in the earlier year will be deemed as business or profession income in the year of payment made in cash.

For payments made to a transporter, the law provides for a higher threshold of Rs. 35,000/- instead of Rs 10,000.


Section 43(1)- Amount Paid in Cash will not be considered as Cost for Depreciation calculation

Where the assessee incurs any expenditure for acquisition of any asset or part thereof in respect of which a payment or aggregate of payments made to a person in a day in cash exceeds Rs 10,000 i.e. otherwise than by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system or through such other electronic mode prescribed, such expenditure shall be ignored for the purposes of determination of actual cost of that Asset and hence depreciation will not be allowed on that amount.


Section 44AB(a) – Increase in Tax Audit Limit from 1 Crore to 10 Crore

As per Section 44AB(a) Tax Audit will be applicable to every person carrying on business, if his total sales, turnover, or gross receipts in business exceed or exceeds one crore rupees in any previous year. However, this 1 Crore limit will be increased to Rs 10 Crore if:

(a)  the aggregate of all amounts received in cash does not exceed 5% of the Total receipt including the amount received for sales, turnover, or gross receipts during the year.

(b)  the aggregate of all payments made in cash does not exceed 5% of Total payment including the amount incurred for expenditure during the previous year.

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Section 194N- Payment of certain amounts in cash

As per Section 194N, The Bank, a co-operative society engaged in carrying on the business of banking or Post-office shall deduct TDS @2% if any person withdraws cash more than Rs 1 Crore from one or more bank accounts maintained with them.

However, if any person has not filed his Income Tax Return for the last 3 years and the last date to file Income Tax return also expired, then the cash withdrawal limit will be reduced to Rs 20 Lakh and TDS will be deducted as follows: –

a) TDS @2% where the amount or aggregate of amounts being paid in cash exceeds Rs. 20 lakh rupees but does not Rs 1 Crore during a year

(b) TDS @5% where the amount or aggregate of amounts being paid in cash exceeds Rs. 1 Crore rupees during a year.


Section 269SS – Mode of taking or accepting certain loans, deposits, and specified sum

No person shall take or accept from any other person (herein referred to as the depositor), any loan or deposit or any specified sum of Rs 20,000 or more at any point of time during the year, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system or through such other electronic mode prescribed.

Penalty in case of violation of Section 269SS:  As per section 271D, if a person takes or accepts any loan or deposit or specified sum in contravention of the provisions of section 269SS, he shall be liable to a penalty, which will be equal to the amount of the loan or deposit or specified sum so taken or accepted.

The provisions of section 269SS shall not apply to any loan or deposit or specified sum taken or accepted from, or any loan or deposit or specified sum taken or accepted by: –

(a)  the Government;

(b)  any banking company, post office savings bank, or co-operative bank;

(c)  any corporation established by a Central, State, or Provincial Act;

(d)  any Government company

(e)  such other institution, association or body or class of institutions, associations, or bodies which the Central Government may notify


Section 269ST

A person shall not receive an amount of Rs 2 lakh or more

(a)  in aggregate from a person in a day or

(b)  in respect of a single transaction or

(c)  in respect of transactions relating to one event or occasion from a person,

otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system or through such other electronic mode prescribed.

Section 269ST not apply to

(i)  any receipt by—

  • Government
  • any banking company, post office savings bank, or co-operative bank;

(ii)  transactions of the nature referred to in section 269SS;

(iii) such other persons or class of persons or receipts, which the Central Government may specify.

Penalty for contravention of section 269ST: If a person receives any sum in contravention of the provisions of section 269ST, he shall be liable to pay a penalty, which will be equal to the amount received by him.

However, no penalty shall be imposable if such person proves that there were good and sufficient reasons for the contravention.


Section 269T

As per this section no person shall repay any loan or deposit made with it or any specified advance received by it 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 or paid the specified advance, or by use of electronic clearing system through or through such other electronic mode prescribed if—

(a)  the amount of the loan or deposit or specified advance together with the interest

(b)  the aggregate amount of the loans or deposits held by such person either in his own name or jointly with any other person on the date of such repayment together with the interest

(c)  the aggregate amount of the specified advances received by such person either in his own name or jointly with any other person on the date of such repayment together with the interest

is Rs. 20,000 or more.

This section shall not apply to repayment of any loan or deposit or specified advance taken or accepted from—

(i)  Government;

(ii)  any banking company, post office savings bank, or co-operative bank;

(iii) any corporation established by a Central, State, or Provincial Act;

(iv) any Government company

(v) such other institution, association or body or class of institutions, associations or bodies which the Central Government may notify.

Penalty in case of violation of Section 269T: If a person repays any loan or deposit or specified advance in contravention of section 269T, then he shall be liable to pay a penalty, which will be equal to the amount of the loan or deposit or specified advance so repaid.


Section 80D- Deduction in respect of health insurance premia

As per Section 80D(2B), If, payment of health insurance premium is made in cash then such amount shall not be allowed as a deduction.


Section 80G- Deduction in respect of donations

As per Section 80G(5D), Any amount paid as a donation in excess of Rs 2,000 in cash shall not be allowed as a deduction under Income Tax Act.


Section 80GGA- Deduction in respect of certain donations for scientific research or rural development

As per Section 80GGA(2A), Any payment made as a donation for Scientific research or Rural Development in excess of Rs 2,000 in cash shall not be allowed as deduction.


Section 80GGB and 80GGC- Deduction in respect of contributions to political parties

As per these sections, any contribution made in cash to political parties shall not be allowed as deduction while computing the total income of the assessee.


Reporting by a Banking company or a Cooperative bank, Credit card companies, etc.

Nature of Transactions Reporting By
(a) Payment made in cash for the purchase of bank drafts/ pay orders/banker’s cheque of an amount aggregating to Rs. 10 lakh or more in a financial year.

(b) Payments made in cash aggregating to Rs. 10 lakh or more during the financial year for the purchase of pre-paid instruments issued by RBI.

(c) Cash deposits or cash withdrawals (including through bearer’s cheque) aggregating to Rs. 50 lakh or more in a financial year, in or from one or more current accounts of a person.

A banking company or a cooperative bank
Cash deposits aggregating to Rs. 10 lakh or more in a financial year, in one or more accounts (other than a current account and time deposit) of a person (i) A banking company or a cooperative bank

(ii) Post Master General

Payments made by any person of an amount aggregating to Rs 1 Lakh or more in cash against bills raised in respect of one or more credit cards issued to that person, in a financial year. A banking company or a cooperative bank or any other company or institution issuing credit cards.
Receipt of cash payment exceeding Rs. 2 lakhs for sale of goods or services (If not covered other points above) Any person who is liable for Tax audit under section 44AB under Income Tax Act.

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