Can You Be Fined 100% for High Cash Transactions? Know the Latest Tax Rules

The government wants to promote digital transactions, so rules have been set to prevent payments in cash beyond a certain limit. Many times, people are

The government wants to promote digital transactions, so rules have been set to prevent payments in cash beyond a certain limit. Many times, people are unaware of these rules and end up facing fines for violating them. The Income Tax Department closely monitors large cash transactions. In this article, we will share all the details on whether the Income Tax Department can impose a 100% penalty on cash transactions above the limit and explain the rules.

Penalty on Cash Transactions Above the Limit

Under the Income Tax Act, of 1961, a limit has been set for cash transactions. The Act also prohibits deductions, allowances, expenses, etc., in cash. If cash transactions exceed the limit, the Income Tax Department can impose a penalty equal to the amount paid in cash. It’s important to be aware of these tax rules to avoid penalties.

Understanding the Rules for Cash Transactions

Often, people unknowingly make cash transactions above the limit and later face heavy penalties. To avoid such mistakes, it’s essential to know the rules. On January 2, 2025, the Income Tax Department released a brochure with information about cash transactions. The brochure outlines the limit for cash transactions, the nature of transactions, and the individuals involved.

Rules for Cash Transactions Under the Income Tax Act

1. Section 269SS: No Cash Loans or Deposits Above ₹20,000

1. No person can accept a loan, deposit, or specified sum in cash if it exceeds ₹20,000.
2. Exemptions: Government banks, post office savings banks, and cooperative banks (with some exceptions).
3. This rule does not apply if both the payer and receiver earn agricultural income and have no taxable income.
4. Penalty for Violation: A penalty equal to the cash amount taken will be imposed under section 271D.

2. Section 269ST: No Cash Transactions Above ₹2 Lakh in a Day

• A person cannot accept more than ₹2 lakh in cash from one person on the same day or for a single event (e.g., a wedding, or birthday).
• This applies to everyone, whether a taxpayer or not.
• Exemptions: Government, banking companies, post office savings banks, and co-operative banks.
• Penalty for Violation: A fine equal to the cash amount taken will be imposed under section 271DA.

3. Section 269T: No Cash Repayment of Loan or Deposit Above ₹20,000

• Cash repayments of loans or deposits above ₹20,000 are prohibited.
• Exemptions: Government, banks, and post office savings banks.
• Penalty for Violation: A penalty equal to the cash amount paid will be imposed under section 271E.

4. Section 269SU: Payment Through Electronic Mode

• Businesses with an annual turnover of more than ₹50 crore must provide the facility for electronic payments.
• Penalty for Violation: A fine of ₹5,000 per day will be imposed under section 271DB for non-compliance.

Government’s Efforts to Promote Digital Transactions

The Income Tax Department has released a brochure to inform the public about the penalties for cash transactions. The government wants to encourage digital transactions and reduce cash payments, even for small transactions. The goal is to make people more aware of the tax rules and avoid penalties for cash transactions.