In today’s times, when almost everything is done through digital payments, many people still make cash transactions, whether for household expenses, gifts, or business purposes. But did you know that the Income Tax Department has set a daily cash transaction limit? If you exceed this limit, you could receive a tax notice and a hefty fine.
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. Sometimes, people withdraw or deposit large sums of cash without realizing it, which could violate tax rules. Therefore, it is crucial to understand the legal limit for cash withdrawals and transfers per day.
What does section 269ST of the Income Tax Act say?
According to Section 269ST of the Income Tax Act, any person can make cash transactions of only up to Rs 2 lakh in a day. This means that if you take or give more than Rs 2 lakh in cash from any one person in a day, it will be considered a direct violation of the rules. This rule applies to all types of transactions, whether it is a gift, loan, or business payment. For example, if you give or take Rs 2 lakh in cash from someone, the Income Tax Department can keep an eye on it and send you a notice.
How much will the penalty be for breaking 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 received ₹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 made?
The government enacted this rule to curb black money and tax evasion. Large cash amounts are difficult to trace, so the government requires all major transactions to be conducted via bank transfer, check, or digital means to ensure traceability. Even if the transaction is private, such as giving money to a relative or friend, if the amount exceeds ₹2 lakh, the Income Tax Department can investigate it.
How does the Income Tax Department keep an eye?
The Income Tax Department now monitors all transactions through an AI (Artificial Intelligence)-based data analysis system. If someone’s savings account sees cash deposits or withdrawals exceeding ₹10 lakh in a year, or if a current account sees activity exceeding ₹50 lakh, the system sends an alert.
Not only this, if a person repeatedly tries to avoid the limit by making cash entries of less than Rs 2 lakh, then that too can be considered a “suspicious transaction” and can be investigated.
The Income Tax Department is also keeping an eye on these transactions.
The Income Tax Department monitors not only bank cash deposits but also various other types of cash transactions, such as:
- If you deposited more than Rs 10 lakh in cash in the bank in a year
- Pay credit card bills of more than Rs 1 lakh in cash
- Property worth Rs 30 lakh or more purchased or sold in cash
- Received gifts worth more than Rs 50,000 in cash
- He took more than Rs 2 lakh in cash from a client for business purposes.
How to avoid Income Tax notice?
If you want to avoid Income Tax notices, keep a few simple things in mind:
- Always do all major transactions through bank or digital payment.
- Keep records of every transaction like bills or receipts.
- If it is necessary to give a gift or loan, then do it in writing.
- The most important thing is to always keep in mind the cash limit.
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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