Income Tax Alert: Cash Transactions May Attract Up to 100% Penalty

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The Indian Income Tax Department has become very strict about cash transactions. If you make large cash payments or deposits, you could face a heavy penalty of up to 100%. Many people do not know about these rules and end up paying fines. This article will explain what you should avoid and how to stay safe.

Why Is the Government Strict About Cash Transactions?

The Indian government is working to stop black money, tax evasion, and fraud. Digital transactions leave a record, but cash transactions are harder to track. That’s why the Income Tax Department keeps a close watch on large cash dealings.

Cash Transactions That Can Get You in Trouble

Here are some common cash transactions that may attract penalties:

1. Cash Deposits Above ₹10 Lakh in a Year

  • If you deposit more than ₹10 lakh in cash in your savings bank account in a financial year, the bank will report it to the Income Tax Department.
  • If you cannot explain the source of the money, you may face a penalty of up to 100% of the tax due.

2. Cash Payments Above ₹2 Lakh for a Single Transaction

  • You cannot pay more than ₹2 lakh in cash for a single transaction.
  • This includes purchases of jewellery, real estate, or any other expensive items.
  • If you break this rule, the receiver of the cash (like a shop or a seller) may face a penalty equal to the amount received.

3. Business Cash Transactions Over ₹10,000 Per Day

  • If a business pays more than ₹10,000 in cash to a single person in a day, it cannot claim that expense for tax deductions.
  • Businesses should make payments through cheques, bank transfers, or digital methods to avoid penalties.

4. Property Transactions Over ₹20,000 in Cash

  • If you are buying or selling property, payments above ₹20,000 in cash are not allowed.
  • Always use banking channels to avoid legal trouble.

5. Cash Donations Above ₹2,000

  • Donations to political parties, trusts, or charitable organisations must be made via bank transfers or cheques.
  • Any cash donation above ₹2,000 will not be considered for tax deductions.

6. Repayment of Loans Above ₹20,000 in Cash

  • If you repay a loan of more than ₹20,000 in cash, it could lead to penalties.
  • Always use digital payments or cheques for loan repayments.

Also Read- Cash Deposit Via UPI & PPI Wallet Interoperability- 2 New UPI Features Launched by RBI

What Can Happen If You Break These Rules?

If you make large cash transactions without proper records, you might:

  • Get a notice from the Income Tax Department.
  • Be asked to pay a 100% penalty on the unpaid tax.
  • Face legal action in serious cases.

How to Stay Safe?

To avoid penalties, follow these tips:
✔ Use digital payments like UPI, credit/debit cards, and bank transfers.
✔ Always take proper receipts for transactions.
✔ If you receive cash, keep a record of where it came from.
✔ Do not accept or give cash above the allowed limit.

The Income Tax Department is closely monitoring cash transactions. If you follow these rules, you can stay out of trouble and avoid heavy fines. Always prefer digital transactions for safety and transparency.

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