MUST check in the ITR application! These cash transactions can result in a 100% income tax penalty

MUST check ITR filing: Tax sleuths are out to tighten the noose on cash transactions. Ahead of the union budget, Mint is looking at some transactions that could result in hefty fines by the Income Tax (IT) department as the government tries to discourage the flow of liquid money.

The IT department and popular investment platforms, including banks and mutual funds, have discouraged cash transactions by tightening rules for laypeople.

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 transaction value is marginal or small,” the IT department brochure said.

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

“Severe fines, 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. Thus, taxpayers should be aware that some cash transactions may result in a 100% income tax penalty.

100% penalty: cash transactions subject to income tax scrutiny

When asked about the top 5 cash transactions that can trigger an income tax return, Abhishek Soni listed the following:

1) Loans, deposits and advances (Article 269SS)

Exceeding cash transactions ₹20,000 for loans, deposits or certain amounts are prohibited.

Punishment: Equal to the amount accepted in cash.

2) Cash received above ₹2 Lakh (section 269ST)

No one can accept cash ₹2 lakh in a single day or through linked transactions.

Punishment: Equal to the amount received.

“Those who accept cash of more than two lakh in violation of this provision may be liable to a fine equal to the cash received. It is interesting to note that the payer bears no responsibility under these provisions,” said Mumbai-based tax and investment expert Balwant Jain.

What Section 269ST says

According to Article 269ST, no one may receive more than ₹2 lakh (the limit for cash receipts) from an individual in any of the following situations: in aggregate from an individual in a single day, in connection with a single transaction, or in connection with transactions of an individual related to a single event or opportunity.

3) Repayment of loans and deposits (Article 269T)

Cash repayments on loans or deposits greater than ₹20,000 are not allowed.

4) Operating expenses (section 40A(3))

Exceeding cash payments ₹10,000 ( ₹35,000 for transporters) are not deductible.

5) Donations (Article 80G)

Donations above ₹2,000 paid in cash are not eligible for deduction.

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

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