In India, cash transactions are closely monitored under the Goods and Services Tax (GST) and Income Tax Act to prevent tax evasion and promote digital payments. Businesses and individuals must comply with cash sale limits to avoid penalties and ensure smooth financial transactions.
This article provides a detailed explanation of cash sale limit in GST and Income Tax, penalties for exceeding limits, compliance tips, and the impact on businesses.
Cash Sale Limit Under GST
1. Cash Receipt Limit for Businesses Under GST
✔ Businesses must report all cash sales in GSTR-1 and GSTR-3B.
✔ If cash transactions exceed ₹2 lakh, GST authorities may seek an explanation.
✔ Input Tax Credit (ITC) is only available for transactions where GST is properly invoiced and paid.
2. GST Applicability on Cash Sales
Cash sales are treated the same as digital or cheque payments under GST.
✔ GST must be collected and deposited on taxable cash sales.
✔ Proper tax invoices must be issued for cash sales exceeding ₹200.
✔ For cash sales above ₹50,000, customer details (PAN/Aadhaar) must be recorded.
3. Composition Scheme & Cash Sales
✔ Businesses under the GST Composition Scheme can accept cash payments but must deposit GST at a fixed rate.
✔ Composition taxpayers cannot collect GST separately from customers.
Cash Sale Limit in Income Tax
The Income Tax Act, 1961 imposes strict limits on cash receipts and cash transactions to curb black money and promote transparency.
1. Section 269ST: ₹2 Lakh Cash Receipt Limit
Under Section 269ST, any person or business cannot receive ₹2 lakh or more in cash from a single person in a single day or a single transaction.
✔ Example: If a business sells goods worth ₹2,50,000, the buyer must pay via cheque, bank transfer, UPI, or credit card. Cash payment is not allowed.
✔ Penalty: 100% of the amount received in violation of Section 269ST.
2. Cash Expenditure Limit: ₹10,000 Per Day (Section 40A(3))
Businesses cannot claim deductions for expenses paid in cash exceeding ₹10,000 per day per vendor.
✔ Example: If a business pays ₹15,000 in cash for office supplies, ₹5,000 will not be allowed as a deductible expense.
3. Property Transactions: ₹20,000 Cash Limit (Section 269SS & 269T)
✔ Buying Property: Cash payments above ₹20,000 for real estate transactions are prohibited.
✔ Property Loans & Repayments: Property loans must be received and repaid via banking channels only.
4. Cash Donations Limit: ₹2,000 (Section 80G)
✔ Donations exceeding ₹2,000 in cash are not eligible for tax deductions under Section 80G.
5. Cash Loan Limit: ₹20,000 (Section 269SS)
✔ Loans above ₹20,000 cannot be taken in cash.
✔ Loans must be repaid via bank transactions.
✔ Penalty: Equal to the loan amount if violated.
Penalties for Exceeding Cash Sale Limits
| Violation | Relevant Section | Penalty/Fine |
|---|---|---|
| Accepting cash sales above ₹2 lakh | Section 269ST | 100% of the amount received |
| Cash expenses exceeding ₹10,000 per day | Section 40A(3) | Expense disallowed for tax deduction |
| Accepting cash loans above ₹20,000 | Section 269SS | 100% of loan amount as penalty |
| Property transaction cash payments over ₹20,000 | Section 269SS & 269T | 100% penalty on cash amount |
✔ Avoid large cash transactions to prevent penalties and legal scrutiny.
How Businesses Can Ensure Compliance?
✔ Encourage digital payments – UPI, NEFT, RTGS, and cheques.
✔ Maintain proper invoices & records for cash transactions.
✔ Report cash transactions accurately in GST & Income Tax returns.
✔ Avoid splitting transactions to bypass cash limits – IT department can track linked transactions.
✔ Seek professional tax advice to ensure compliance and avoid penalties.
Frequently Asked Questions (FAQs)
Yes, cash sales are allowed under GST, but businesses must issue proper tax invoices and charge applicable GST.
There is no specific limit, but businesses must maintain records and ensure compliance with Income Tax cash transaction limits.
No, under Section 269ST of the Income Tax Act, cash transactions above ₹2 lakh are prohibited, even if GST is paid
No, under Section 40A(3) of the Income Tax Act, payments above ₹10,000 in cash are not allowed as business expenses.
Violating cash transaction limits may result in 100% penalty, tax disallowances, and scrutiny from tax authorities.
Conclusion
Understanding cash sale limits under GST and Income Tax is crucial for businesses to ensure compliance, avoid penalties, and maintain transparency. Businesses must adopt digital payment methods, maintain proper records, and adhere to tax regulations to avoid unnecessary scrutiny from authorities.
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