Making a big cash payment? Know the tax rules


Q. My daughter is getting married in November 2021, I need to pay the booking amount to the hotel, other parties. Can I pay this entire amount in Cash as I have some excess cash lying with me or is there any restriction on cash payment? Naresh Gupta (Mumbai)

Answered by Tarun Kumar, a Delhi Based chartered accountant

No person is allowed to receive a sum of Rs. 2,00,000 or more, from a person in a day or in respect of a single transaction or in relation to one event or occasion, in cash or an impermissible mode. Section 269ST of the Income-tax Act imposes restrictions in respect of the receipts of Rs. 2 lakhs or more in respect of transactions relating to one event or occasion from a person. Marriage is an event, therefore, if you make a payment in respect of such function to the hotel for an amount exceeding Rs. 2 lakhs the provisions of section 269ST shall be applied as all the payments are made in respect of a single event.

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

Although there is no restriction on you to pay the cash but if the income-tax department comes to know the hefty cash payments have been made by you, then they can issue you notice asking you to explain the sources of such cash. If you incur any expenditure for which you have no explanation about the source of such expenditure or the explanation offered by you is not satisfactory in the opinion of the assessing officer, the amount of such expenditure may be deemed as unexplained income of such financial year in your hands. Such unexplained income shall be taxable at special tax rate of 78%. The assessing officer shall also levy penalty in respect of unexplained income under Section 271AAB Section 271AAC.

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