Make a big cash payment? Know the tax rules

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Q. My daughter is getting married in November 2021, I have to pay the amount of the reservation to the hotel and other parties. Can I pay the entire amount in cash because I have excess money on me or are there restrictions on paying in cash? Naresh Gupta (Mumbai)

Answered by Tarun Kumar, a Delhi-based accountant

No one is allowed to receive an amount of Rs. 2,000,000 or more, from a person in one day or in respect of a single transaction or in connection with any event or occasion, in cash or in an unauthorized mode. Section 269ST of the Income Tax Act imposes restrictions on receipts of Rs. 2 lakhs or more in relation to transactions relating to a person’s event or occasion. The wedding is therefore an event if you make a payment in respect of this function at the hotel for an amount greater than Rs. 2 lakhs, the provisions of article 269ST will be applied as all payments are made for one event.

There is no such restriction on the payer, but this provision prevents a person (payee) from receiving an amount of Rs. 2 lakh or more in cash. If this hotel receives Rs. 2 lakhs or more in cash, the penalty may be invoked on them for a sum equal to the amount of this receipt.

Although there is no restriction for you to pay in cash, but if the income tax department learns that you have made large cash payments, then they may issue you a notice asking you to explain the sources of these species. If you incur expenses for which you have no explanation as to the source of these expenses or if the explanation provided by you is not satisfactory in the opinion of the assessing officer, the amount of these expenses may be considered. as an unexplained income from this exercise in your hands. This unexplained income is taxable at the special rate of 78%. The assessment officer must also impose a penalty for unexplained income under section 271AAB and section 271AAC.

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