MUST check in ITR filing! These cash transactions may lead to 100% income tax penalty

MUST check in ITR filing: Tax sleuths are out to tighten the noose on cash transactions. Ahead of the union budget, Mint takes a look at some transactions that may result in hefty penalties by the Income Tax (IT) department, as the government seeks to discourage the flow of liquid money.

The IT Department and popular investment platforms, including banks and mutual funds have been discouraging cash transactions by tightening rules for layman.

The IT Department released a brochure on January 2, 2025, highlighting the importance of avoiding cash transactions to reduce the risk of tax penalties. “Say ‘No’ To Cash Transactions. Individuals often prefer to receive, pay, and transfer cash when the transactional value is marginal or small,”  the IT Department brochure stated.

Section 269ST of the Income Tax Act, which discourages undeclared income and encourages digital payments, is one measure in the crackdown on black money.

“Serious penalties, up to 100% of the transaction value, may be imposed for violating these provisions,” said Abhishek Soni, CEO and Co-founder of Tax2win.

The deadline for filing income tax returns (ITR) is July 31 for the assessment year 2025-26. So, taxpayers must be aware that some cash transactions may result in a 100% income tax penalty.

100% Penalty: Cash transactions under income tax scrutiny

Asked about the top 5 cash transactions that can attract income tax notice, Abhishek Soni listed out the following:

1)Loans, Deposits, and Advances (Section 269SS)

Cash transactions exceeding ₹20,000 for loans, deposits, or specified sums are prohibited.

Penalty: Equal to the amount accepted in cash.

2)Receiving cash above ₹2 Lakh (Section 269ST)

No individual can accept cash exceeding ₹2 lakh in a single day or across linked transactions.

Penalty: Equal to the amount received.

“Those who accept cash beyond two lakhs, in contravention of this provision, can be subjected to a penalty equal to cash received. It is interesting to note that the payer does not have responsibility under these provisions,” said Mumbai-based tax and investment expert Balwant Jain.

What Section 269ST says

According to Section 269ST, no one may receive more than ₹2 lakh (the cash receipt limit) from a person in any of the following situations: in total from a person in a single day, in connection with a single transaction, or in connection with transactions from a person related to a single event or occasion.

3)Repayment of Loans and Deposits (Section 269T)

Cash repayments of loans or deposits exceeding ₹20,000 are not allowed.

4) Business Expenditures (Section 40A(3))

Cash payments exceeding ₹10,000 ( ₹35,000 for transporters) are non-deductible.

5) Donations (Section 80G)

Donations above ₹2,000 made in cash do not qualify for deductions.

“Taxpayers must remain vigilant, as any non-compliance could lead to severe penalties. The Income Tax Department’s recent initiative to educate the public underscores the importance of transitioning to a cashless economy,” said Abhishek Soni.

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