Money transfers have consistently been a major factor in the development of black money in the Indian economy. The government recently started several initiatives to reduce cash transaction limit and increase digital payments.
With the advent of digital banking, India is slowly but steadily becoming a cashless economy, where major transactions are done through authorised banking channels or electronically. Not only are digital transactions faster and more convenient, they save money for individuals and businesses and reduce the circulation of black money.
The cash sale limit in GST refers to the cash transaction limit permitted under various sections of the Income Tax Act, including Sections 40A(3), 43 and 269SS. Non-compliance with these limits can result in penalties
Cash Transaction Limit: Section 269ST
A new Section 269ST has been added to the Income Tax Act as a result of the measures taken by the Finance Act 2017 to curb black money. A cash transaction limit was restricted by Section 269ST and was only allowed to be worth up to Rs. 2 Lakh per day. No one will receive any sum of ₹2,00,000 or more, according to Section 269ST.
- In total from an individual in a day
- About a single purchase
- About cash transaction limit from a person regarding a single event or occasion.
However, it has been made clear by the Central Board of Direct Taxes (CBDT) that cash withdrawal limits from banks and post offices are exempt. Consequently, the following situations are exempt from the requirements of section 269ST:
- Money is received through the use of an electronic clearing system (ECS) out through a bank account, an account payee bank draught, or a cheque made payable to an account payee.
- any payment received from the federal government, a bank, a post office savings bank, or a cooperative bank.
- Cash transaction limit that fall under the definition of “nature” in Section 269ST.
- Such additional individuals, groups of individuals, or receipts as the Central Govt may specify by notification in the Official Gazette,
Withdrawal from Post Office
- Post offices under the Department of India Post facilitate drawings from Post Office savings account along with ATM facility.
- The limit of cash that can be withdrawn in a single day from a post office or ATM is Rs.25,000 and is limited to Rs.10,000 per transaction.
- The post office permits five free transactions per month including financial and non-financial transactions (balance enquiry, statement request). Beyond the free transactions, Rs.20 with GST is charged.
- Withdrawal from other bank ATMs is admissible wherein it is upto 3 free transactions in metro cities while it is five free transactions in non-metro cities. A fee of Rs.20 with GST is charged for transactions above the free transactions.
Withdrawal from Banks
The amount deposited can be withdrawn from both savings account and current account using a chequebook/withdrawal slip or using automated teller machine through a debit card. Cash withdrawal limit varies from bank to bank and also depends on the type of card being used. It varies from 10,000 to 50,000 per day based on the bank. However, the transaction details notified by the State Bank of India is furnished below.
- Withdrawals using chequebook has been restricted to 60 withdrawals per half-year by most of the banks.
- The amount of money that can be debited from the current account is limited to Rs.1,00,000 per week whereas an overall of Rs.24,000 can be drawn per week from the savings account.
- ATM withdrawals allow Rs.10,000 to be drawn per day and permits unlimited free transactions for salary account whereas 3 transactions from other ATMs with a fee of Rs.20 plus GST per month.
Cash Transaction Limit under Income Tax
- Section 40A(3) and Section 43 – Pertains to Cash Payment
- Section 269SS and Section 269ST – Pertains to Cash Receipts
- Section 269T – Pertains to Repayment of Certain Loans / Deposits
Section 40A(3) of the Income Tax Act
Section 40A(3) is an additional amendment introduced to Section 40A in 2009 that restricts payment or receipts in cash beyond a certain threshold. The section disallows tax deductions on expenses above Rs. 10,000 made in cash in a single day to a single person. This daily limit applies to any mode of transaction other than bank draft, account payee cheque, electronic payment system and prescribed electronic modes.
You read it correctly. If as a business owner, you make a business payment to any person in a single day in excess of Rs. 10,000, then the said expense will not be allowed as a deduction to you while computing your taxable income.
The ceiling under Section 40A(3) is increased to Rs. 35,000 where the cash payment is made to transporters to hire, lease or ply goods vehicles. The provisions also do not apply to commission agents for goods that they have received for commissions/consignments. This is because such expenses cannot be deducted by the commission agents.
If you make any payment in excess of the limit of Rs. 10,000/35,000, it will be disallowed. Further, there can be a situation where you have already claimed the deduction of an expense in an earlier year on an accrual basis and during the current year you make payment for such already accrued expense, then, in that case, it will be deemed as your income and will be taxed under the head ‘profits and gains of business or profession’ [Section 40A(3A)]. Your tax liability will arise in the year previous to the one when you made such a payment.
Section 43 of Income Tax
Under section 43 of Income Tax Act, if payment of more than Rs.10,000 is made by a taxpayer for the acquisition of an asset by cash, the expenditure would be ignored for the purposes of determination of actual cost of the asset. Hence, it is important for all taxpayers acquiring assets to make all payments to the seller through banking channels.
Section 269SS of Income Tax
Section 269SS prohibits a taxpayer from taking/accepting loans or deposits or a sum of more than Rs.20,000 in cash. All loans and deposits of more than Rs.20,000 must always be taken through a banking channel. Section 269SS of the Income Tax Act is however not applicable when accepting/taking loan or deposit from a person or entity mentioned below:
- Government;
- Any banking company, post office saving bank or co-operative bank;
- Any corporation established by a Central, State or Provincial Act
- Any Government company as defined in clause (45) of section 2 of the Companies Act, 2013
- An institution, association or body or class of institutions, associations or bodies notified by Central Government in the official gazette.
Finally, if the person from whom the loan or deposit is taken and the person by whom the loan or deposit is accepted, are both having agricultural income and neither have any income taxable under Income Tax Act, then the provisions of Section 269SS will not apply.
Penalty under Section 269SS
Failure to comply with provisions of section 269SS could lead to a penalty equal to the amount of loan or deposit or specified sum accepted.
Section 269ST of Income Tax Act – Cash receipt limit
Section 269ST of the Income Tax Act provides that no person can receive an amount of INR 2 Lakhs or more in cash:
- 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.
Provisions of Section 269ST are not applicable when cash of more than Rs.2 lakhs is received from the following persons:
- Government;
- Any banking company, post office saving bank or co-operative bank;
- An institution, association or body or class of institutions, associations or bodies notified by Central Government in its official gazette.
Penalty under Section 269ST
As per section 271DA, in case of failure to comply with provisions of section 269ST, a penalty amount equal to the amount of receipt is payable.
Section 269T of Income Tax Act
Section 269T provides that any branch of a banking company or a co-operative society, firm or another person cannot repay any loan or deposit otherwise than by an account payee cheque or account payee bank draft drawn in the name of the person, who has made the loan or deposit, if:
- The amount of the loan or deposit together with interest is INR 20,000 or more; or
- The aggregate amount of loans or deposits held by such person, either in his name or jointly with another person on the date of such repayment together with interest is INR 20,000 or more.
Provisions of section 269T are not applicable when the loan is repaid or deposit taken or accepted from below mentioned person:
- Government;
- Any banking company, post office saving bank or co-operative bank;
- Any corporation established by a Central, State or Provincial Act
- Any Government company as defined in clause (45) of section 2 of the Companies Act, 2013
- An institution, association or body or class of institutions, associations or bodies notified by Central Government in the official gazette.
Penalty under Section 269T
As per section 271E, in case of failure to comply with provisions of section 269T, penalty amount equal to the amount of loan or deposit repaid is payable
FAQs
Are there any limits on cash withdrawals from banks and post offices?
Yes, cash withdrawal limits vary by institution. For banks, daily withdrawal limits typically range from ₹10,000 to ₹50,000, depending on the type of account and debit card. Post offices allow withdrawals up to ₹25,000 per day, with a maximum of ₹10,000 per transaction, and additional fees may apply for exceeding a certain number of transactions per month
What is the cash transaction limit under GST and the Income Tax Act?
The cash transaction limit under the Income Tax Act varies depending on the section. For example, Section 269ST restricts cash transactions exceeding ₹2 lakh per day, while Sections 40A(3) and 43 limit cash expenditures to ₹10,000. These limits aim to curb black money and encourage digital transactions. GST doesn’t have a specific cash transaction limit but relies on these Income Tax provisions
