Stringent Norms and Strict Monitoring on Transactions by Income Tax Department

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In its attempts to discourage the use of physical money, and monitor illegal transactions to curb corruption, the Income Tax Department has issued a severe warning. Even though the efforts are directed against high-value transfers and stashing unaccounted wealth, there are medium and low-value transfers as well, that might invite penalties. Besides, such transactions might also hurt your tax deduction limits.

Here is a list of scenarios that will invite the ire of IT Department. Try to forgo them for a smooth financial future:

Scenario 1: If Rs. 2 lakh or more are credited to your account by a person over 24 hours, or through a single transaction, or by a person pertaining to a single event or occasion in case of split transaction, you would stand in violation of Section 269ST. Under Section 271D, the receiver will be liable to pay the amount equal to receipt if Section 269ST is violated. The IT Department encourages transactions by draft, cheque or electronic clearing system to avoid such penalties as it allows for easy tracking and cross-checking of transactions. These regulations are not applicable to Government, Banking Companies, Post Office Savings Bank, Co-operative Bank or a person notified by the government. Transactions referred to in Section 269SS pertaining to loan amounts will also not be liable to penalty in case of these institutions. The penalty shall be relaxed if a person is able to prove satisfactory and sufficient reasons for the breach.

Scenario 2: If Rs. 10,000 or more is paid as expenditure pertaining to business or profession, you could be facing a situation in which deductions will not be allowed on these amounts if they fall in the profit and loss account. Again, the IT Department has promoted the use of account payee bank draft, bank cheque or electronic clearing system modes for such transfers.


Scenario 3: If Rs. 20,000 or more is credited to or debited from your account in single or multiple transactions that pertain to loan amount. Thus loan amounts received or returned that overshoot the limit will be liable to penalty under Section 269SS. The penalty is 100% of the transacted amount. Government, Banking Company, Co-operative Bank, Post Office Saving Bank, Corporations established by Central, State or Provincial Acts, Government Companies, and Notified Institutions will not be bound by this limit. The following will also not be liable to penalty:

  • If a person who earns only agricultural income receives or deposits loan amount.
  • Cash received in emergency from relatives such that the intention is not to evade tax.
  • Partners transacting in cash in a partnership firm.

Scenario 4: If health insurance premiums are made in cash, deduction on them under Section 80D will not be applicable.

Scenario 5: If Rs. 2000 or more is credited towards a registered trust or political party. Not only will deductions under Section 80G of the IT Act be inapplicable but the trust or political party could also get into trouble for laundering money. Making transactions by means that can be tracked and monitored will keep the noses of both sides clean.

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