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Navigating Income Tax Regulations: Understanding Cash Transaction Limits for a Digital Economy

In India, there are several limits and regulations on cash transactions imposed by income tax regulations to curb tax evasion and promote a digital economy. Here are some key points:

Cash Transaction Limit

As per Section 269ST of the Income Tax Act, 1961, cash transactions exceeding Rs. 2 lakh (previously Rs. 20,000) in aggregate per day per person are not allowed. This applies to a single transaction or multiple related transactions.

Reportable Transactions

Banks and financial institutions are required to report cash deposits of Rs. 10 lakh (previously Rs. 50,000) or more in a financial year in one or more accounts (other than current or savings accounts) to the Income Tax Department.

Navigating Income Tax Regulations

Form 61A Reporting

Under Section 285BA of the Income Tax Act, certain specified persons such as banks, financial institutions, and businesses are required to furnish an Annual Information Return (AIR) in Form 61A. This includes information on high-value transactions, including cash deposits, property transactions, credit card payments, etc., above specified thresholds.

Digital Payments Promotion

The government of India has been promoting digital payments through initiatives like Digital India and Digital Payments Mission. Cashless transactions are encouraged through incentives, discounts, and various payment platforms.

Tax Deducted at Source (TDS)

Certain payments exceeding specified thresholds are subject to Tax Deducted at Source (TDS) provisions. Cash payments exceeding Rs. 10,000 (previously Rs. 20,000) to contractors, professionals, rent, etc., are subject to TDS under Section 194N.

Penalties and Consequences

Non-compliance with cash transaction limits and reporting requirements can result in penalties and prosecution under the Income Tax Act. Penalties may be levied for failure to comply with TDS provisions and for under-reporting or misreporting of income.

Income Tax Audit

Businesses and individuals with high-value transactions or suspicious activities may be subject to income tax audits by the Income Tax Department to verify compliance with tax laws and regulations.

It’s important for businesses and individuals to be aware of these limits and regulations and ensure compliance to avoid penalties and legal consequences. Seeking advice from tax professionals or consulting the Income Tax Department’s guidelines can help ensure adherence to the applicable regulations.