Cash Transaction Rules: Most people are unaware of the legal limit for cash transactions in a day. Let’s explore this limit.
In the era of promoting digital payments and online banking, the Income Tax Department has become increasingly strict regarding large cash transactions. Whether you’re withdrawing cash for personal use or business purposes, it’s crucial to understand the legal limit for cash transactions in a single day. Many people may not realize that exceeding a certain limit not only results in a penalty but also a potential income tax notice. So, let’s explore the permissible daily cash transactions under the Income Tax Act.
Section 269 ST
According to Section 269 ST of the Income Tax Act, no person is permitted to receive cash of Rs. 2 lakh or more in a single day from one or more persons. This restriction is independent of whether the transaction is personal or business. For example, if you are selling a car and receive Rs. 2.5 lakh in cash, this is legally against the Income Tax Act.
Penalty for violating the rule
If you accept cash exceeding ₹2 lakh, the Income Tax Department can impose a penalty equal to the total amount of cash received. For example, if you accept ₹5 lakh in cash for property or business transactions, the penalty can be up to the full ₹5 lakh. This penalty is imposed under Section 271DA, and the recipient of the cash is held accountable.
Why is this rule
The ₹2 lakh cash transaction limit was imposed to curb black money and tax evasion in the economy. The government’s goal is to ensure that all large transactions, whether conducted through bank transfers, checks, or digital means, are transparent and traceable. Even a personal transaction, such as giving money to a friend or relative, exceeding ₹2 lakh is subject to scrutiny.
Monitoring System of Income Tax Department
The Income Tax Department uses AI-powered data analysis to monitor unusual or high-value cash deposits and withdrawals. Alerts can be issued for cash deposits or withdrawals exceeding ₹10 lakh in a savings account or ₹50 lakh in a current account in a financial year. Furthermore, multiple cash transactions under ₹2 lakh can also be identified as suspicious to avoid detection.
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