Are Cash Transactions a Mistake? CA Sakchi Jain Guides Through the Tax Risks

Using cash for transactions might seem convenient, but under the Income Tax Act, certain cash payments can lead to penalties or disallowed expenses. In a recent video, finance expert CA Sakchi Jain, along with Navin Jain, explained when cash payments could get you into trouble. Here are some important guidelines to follow:

1. No Cash for Property Transactions Over ₹20,000:

Avoid accepting or paying more than ₹20,000 in cash when purchasing or selling real estate. Any cash payment for real estate transactions that exceeds this sum may be subject to a penalty equal to the whole amount paid, per Section 269SS. Using traceable payment methods, such as bank transfers or checks, is preferable.

2. Limit of ₹2 Lakh Cash Transactions in a Day:

The number of cash receipts of ₹2 lakh or more in a single day from one person can bring heavy penalties under Section 269ST. You would be levied the same amount of cash if the amount crosses ₹2 lakh. As much as possible, try to make or receive large payments through electronic means by cheque, with no cash involved.

3. Cash Donations: Keep It Below ₹2,000 for Tax Deductions:

While donating to a registered trust or political party is a good deed, keep in mind that Section 80G disallows tax deductions for cash donations exceeding ₹2,000. For donations above this, use non-cash payment methods to ensure you can claim tax benefits.

4. Cash Business Payments Shouldn't Exceed ₹10,000:

For business or professional expenses, Section 40A(3) disallows any deduction for cash payments over ₹10,000 in a single day. So, to ensure deductions, opt for non-cash payments for any large business expenses.

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To avoid penalties and ensure your expenses are legitimate, it is best to avoid large cash transactions. Cheques, bank transfers, or other electronic payments will help you stay compliant with the Income Tax Act.