The Income Tax Department is keeping an eye on big cash transactions, and you can get an income tax notice for the slightest mistake.

According to experts if a person takes Rs 5 lakh in cash in a day and the tax department gets information about it, then he may have to pay a hefty fine. This limit, however, is not applicable for withdrawals from banks and post office.

In what circumstances does this rule apply?

According to section 269ST, no person or entity can take more than Rs 2 lakh in cash in a day in three situations:

• Taking more than Rs 2 lakh from a single person in a single day
• Taking more than Rs 2 lakh for any single transaction
• Taking more than Rs 2 lakh for transactions related to a single occasion or event

However, there are some exceptions. Government authorized entities other than banks do not fall under the purview of this rule.

Which sections of the Income Tax Act apply to cash transactions?

Sections 40A(3) and 43 – Related to cash payments

Sections 269SS and 269ST – Related to cash receipts

Section 269T – Related to cash repayment of loan or deposit

Advice for taxpayers

If you are going to give a large amount to someone or are taking it from somewhere, then try to make that transaction through banking medium (like NEFT, RTGS or UPI). This will not only save you from tax notices, but will also maintain your financial transparency.

Summing up

In today’s time when digital payments are being promoted, the strictness of the tax department on cash transactions is not a surprise. In such a situation, it is important that you are aware of the law and avoid taking or giving more than Rs 2 lakh in cash. This will not only be safe for you, but will also save you from heavy penalties.