Cash Transaction Rules: The Indian government and the Income Tax Department are now strictly monitoring cash transactions. This is aimed at curbing black money and tax evasion.
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Cash Transaction Rules: In today’s times, when almost everything is being done through digital payments, many people still make cash transactions, whether for household expenses, gift-giving, or business purposes. But did you know that the Income Tax Department has set a daily cash transaction limit? Exceeding this limit could result in a tax notice and a hefty penalty.
Income Tax Department Strict on Cash Transactions
The Indian government and the Income Tax Department are now strictly monitoring cash transactions. This is aimed at preventing black money and tax evasion. People often withdraw or deposit large sums of cash without knowing it, which could violate tax rules. Therefore, it is crucial to understand the legal limit for daily cash transactions.
What does Section 269ST of the Income Tax Act say?
According to Section 269ST of the Income Tax Act, any individual can only make cash transactions of up to ₹2 lakh in a day. This means that if you give or receive more than ₹2 lakh in cash from any one person in a single day, it will be considered a direct violation of the rules. This rule applies to all types of transactions, whether it’s a gift, a loan, or a business payment. For example, if you give or receive ₹2 lakh in cash, the Income Tax Department can monitor this and issue a notice.
What is the penalty for exceeding the limit?
If you violate this rule, the Income Tax Department can impose a fine equal to the amount you received in cash. For example, if you accept ₹2.5 lakh in cash from someone, you could face a fine of ₹2.5 lakh. This penalty is imposed under Section 271DA of the Income Tax Act. This penalty applies to the person receiving the money, not the person giving it.
Why was this rule enacted?
The government enacted this rule to curb black money and tax evasion. Large cash amounts are difficult to trace, so the government requires that all major transactions be conducted through bank transfers, checks, or digital means to ensure traceability. Even if the transaction is personal, such as giving money to a relative or friend, if the amount exceeds ₹2 lakh, the Income Tax Department may investigate.
How does the Income Tax Department monitor?
The Income Tax Department now monitors all transactions through an AI (Artificial Intelligence)-based data analysis system. If someone’s savings account deposits or withdrawals exceed ₹10 lakh in a year, or if activity exceeds ₹50 lakh in a current account, the system sends an alert.
Not only this, if someone repeatedly attempts to evade the limit by making cash entries of less than ₹2 lakh, this can also be considered a “suspicious transaction” and investigated.
The Income Tax Department also monitors these transactions.
The Income Tax Department monitors not only bank cash deposits but also many other types of cash transactions, such as:
If you deposited more than ₹10 lakh in cash in a year
Paid a credit card bill of more than ₹1 lakh in cash
Bought or sold property worth ₹30 lakh or more in cash
Received a gift of more than ₹50,000 in cash
Received more than ₹2 lakh in cash from a client for business purposes
How to avoid an Income Tax notice?
If you want to avoid an Income Tax notice, keep a few simple things in mind:
- Always conduct all major transactions through a bank or digital payment system.
- Keep records of every transaction, such as bills or receipts.
- If it’s necessary to give a gift or loan, do so in writing.
- Most importantly, always keep your cash limit in mind.
In this era of Digital India, where everything is done via mobile, it’s wise to avoid giving or receiving large sums of money in cash. The Income Tax Department is now closely monitoring all large cash transactions. Therefore, understand the rules, know the limits, and be cautious with cash transactions. Otherwise, even accidentally transferring or receiving large amounts of cash could result in a notice and a hefty fine.
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