Income tax returns filing: Have you handled cash? Beware! Taxman can even fine you Rs 2.5 lakh

The Indian government has been boasting about cashless economy in the wake of demonetisation. Following the budget session thereafter, the government brought about various amendments to the income tax laws with an objective to discourage cash transactions. However, despite every effort and measures getting rid of cash entirely is still far away. India  has always been a country where cash transactions have been preferred over digital transactions.   

Archit Gupta, Founder & CEO ClearTax  said, "Given the ease in transacting in cash and the fact that  cash is inseparable from the Indian economy, completely doing away with cash transactions is something very challenging especially for small businesses."

Therefore, discussed here are some basic regulations around cash transactions one needs to be aware of while transacting in them, as per ClearTax. 

1. Cash payment ceiling limit for claiming business expense

Payments made to meet business expenses are allowed as a deduction from income while determining taxable profits. Here, in case you make payments towards business expenses in cash in excess of Rs 10,000 to a single person in a day, the whole of such expenses will be disallowed or cannot be reduced form your gross income before arriving at your taxable profits.

2. Cash Loans and Deposits

Ensure you do not take loans or accept deposits in excess of Rs 20,000 in cash. Doing so may invite a penalty of up to the amount of loan or deposit you have accepted in cash.

3. Repayment of Loans and Deposits

Similarly, do not repay the loan taken in cash in excess of Rs 20,000. Doing so, again may result in you paying a penalty of upto the amount you have repaid in cash.

Do note that the restriction of Rs 20,000 on receiving deposit /loan or repaying the same would not apply to banking companies.

4. Cash Receipts

Make sure you do not receive more than Rs 2 lakhs in cash either :

• In aggregate from a person in a day;
• In respect of a single transaction; or
• In respect of transactions relating to one event or occasion from a person.

Contravention of this provision will attract a penalty equal to the amount received in cash. Now is would be huge ! For e.g. if you are receiving Rs 2.5 lakh in cash, you can be penalized up to Rs 2.5 lakh by the tax authorities. So take care of this.

5. Donations

Businesses can make contributions to certain specified relief funds and charitable institutions which can be claimed as deductions from its total income under Section 80G of the Income Tax Act. Do note that any such donation made in excess of Rs 2,000 in cash will disentitle the business from claiming the 80C deduction. This deduction can be claimed only if the contribution has been made using any of the banking channels if the it exceeds Rs 2,000.

6. Non-digital transactions under presumptive taxation

Businesses can opt for presumptive taxation where they can offer a percentage of their turnover as taxable income. Here, if the receipts of the business are in non-digital form, one must offer 8% off the turnover as presumptive income. However, if the receipts are in digital form, one is entitled to offer just 6% of turnover as presumptive income.