In order to check the use and circulation of black money, successive governments have been putting more and more restriction on cash transactions. This article deals with various restrictions placed on cash transactions under Income-Tax (I-T) laws. Disallowance is applicable to self-employed for business expenses if paid in cash.
Self-employed tax payers can't claim any expenditure beyond Rs10,000 if paid for in cash to a person on a single day. For payments made to a transporter, the law provides for a higher threshold of Rs35,000. This threshold is applicable not only for revenue expenditures, but also apply for payments made for acquisition of any fixed asset failing which you will not be able to capitalise that expenditure and claim depreciation on such expenditure paid in cash.
Disallowance applicable to all the taxpayers for amounts paid in cash
The tax laws allow you certain deduction only if the same have been paid otherwise than by cash. Firstly, the deduction under Section 80 D, in respect of health insurance premium paid, is available only if it the same been paid otherwise than cash. Even for senior citizens who do not have health insurance policy and who can claim for day today medical expenses, these restrictions will apply. So, even for medicines of small amount bought in cash, deduction under Section 80D will not be available. However, you can claim deduction upto Rs5,000 for your family and your parents each for cash paid for preventive health check-up under Section 80 D within the maximum amount admissible under Section 80D. For cash donations made, you can claim the deduction under Section 80G only if the amount of each donation does not exceed Rs2,000. For donations made beyond this threshold, no deduction is available if the same is made in cash.
Restrictions on acceptance and repayment of loan
Not only for payment of expenses, but the tax laws also have placed restriction on acceptance and repayment of loan beyond Rs20,000. If you accept or repay any loan, in contravention of the law, the tax department can levy a penalty equal to the amount of loan so accepted or repaid in cash. It is worthwhile to appreciate that this threshold of Rs20,000 is not considered with respect to each transaction of loan, but will apply to each acceptance which will result into making the balance in the loan account exceed Rs20,000 or for each repayment of any loan if the balance exceeds Rs20,000 at the time of such repayment, irrespective of the amount of the individual transaction of acceptance or repayment. Your transaction with banks, government, Government Company or corporation and other entities as specified by government are however exempted from this rule. So in case you pay your home loan EMIs in cash, this punitive provision does not apply.
Restrictions on receipt of cash by any person
In order to put check on use of cash in high value transactions, the government has put a blanket ban on acceptance of cash beyond Rs2 lakhs by any person under Section 269ST. It is for each occasion like marriage, birthday party etc. or for each transaction like sale of gold, immovable property, holiday package, renovation/furnishing of property, etc., for which this restriction will apply. It may happen that the payer does not claim tax deduction for it, but the restriction on recipient will still apply. Unlike business expenditure, here the restriction is all pervasive for the whole transaction as a whole and not necessarily for payment made in a single day. For example, a caterer can't accept Rs2 lakhs or more in aggregate for marriage reception form a single payer, whether on a single day or spread over several days. Law, generally, does not have any restrictions for payment of cash for transaction of purchase/sale of jewellery or immovable property, etc., but if the value of a single transaction exceeds Rs2lakhs, then seller is prohibited from accepting any cash beyond Rs2lakhs for such transactions. Even one cannot accept gift in cash beyond Rs2lakhs on one occasion from a single donor. Those who accept cash beyond Rs2 lakhs, in contravention of this provision, can be subjected to a penalty equal to cash received. It is interesting to note that the payer does not have responsibility under these provisions.
-The writer is a tax and investment expert and can be reached at firstname.lastname@example.org