Cash Transactions in Audit Cases
Introduction:
Cash Transactions in Audit Cases In the realm of tax audits, cash transactions play a pivotal role. Understanding their importance is crucial for businesses to comply with tax regulations and ensure accurate financial reporting. This article delves into the intricate details of cash transactions within audit cases, shedding light on their significance and the associated components.
Tax Audit Eligibility Criteria:
Tax audits, primarily income tax audits, are mandated by the Income Tax Act. Eligibility criteria for tax audits are determined by turnover thresholds set by the Finance Act. Cash Transactions in Audit Cases As per the Finance Act of 2021,Cash Transactions in Audit Cases businesses with a turnover exceeding a certain limit are required to undergo tax audits.
Threshold Limit and Cash Component:
Businesses with turnover surpassing the prescribed threshold, typically set at 10 crores, must conduct tax audits. However, Cash Transactions in Audit Cases if turnover falls below this threshold, the option to undergo a tax audit remains at the discretion of the business entity.
Cash Element:
A critical aspect of tax audits is the consideration of cash transactions. Cash transactions encompass all receipts and payments made in cash. Cash Transactions in Audit Cases If cash transactions constitute less than 5% of the total turnover, businesses may opt out of a tax audit.
Example:
For instance, if cash transactions amount to 5% or less of the total turnover, a business may forego a tax audit. Conversely, if cash transactions exceed this threshold, auditing becomes obligatory.
Cash Transactions and Audit:
Cash transactions exceeding the stipulated threshold, typically 5% of the turnover, necessitate a tax audit. This ensures transparency and accuracy in financial reporting.
Importance of Cash Transactions:
Cash transactions significantly impact audit decisions. If cash transactions exceed 5% of the turnover, businesses are required to declare a profit of at least 6% to avoid mandatory audits. This underscores the importance of monitoring and managing cash transactions effectively.
Professional Guidance:
Professional advisors often recommend conducting audits even if a business falls below the turnover threshold or the cash transaction limit. Cash Transactions in Audit Cases This proactive approach ensures compliance with regulations and minimises potential discrepancies.
What is the maximum limit for cash transactions?
Additional Cash Transactions
Individuals are not permitted to receive ₹2,00,000 or more in cash under the following circumstances:
- The total sum received from an individual within a single day.
- In respect of a single transaction.
- With reference to transactions related to one event or occasion from a person.
What is the limit for tax audit?
A tax audit is mandated if the sales, turnover, or gross receipts of a business surpass Rs. 1 crore in the financial year or if the taxpayer chooses a presumptive taxation scheme under section 44AD or 44ADA of the Income Tax Act, 1961. Cash Transactions in Audit Cases There are additional situations where a tax audit may be necessary.
Income tax sections related to cash transaction limits are as follows:
- Section 40A(3) and Section 43 – Cash Payment
- Section 269SS and Section 269ST – Cash Receipts
- Section 269T – Repayment of Certain Loans / Deposits
Section 40A(3)
of the Income Tax Act deals with the cash transaction limit for expenditures. According to this section, if a payment exceeding Rs. 10,000 is made in cash for any expenditure, it will be disallowed under the Income Tax Act. Cash Transactions in Audit Cases Therefore, it’s essential for taxpayers to make payments exceeding Rs. 10,000 for expenses through banking channels like debit card, bank transfer, cheque, or demand draft.
Section 43
of the Income Tax Act states that if a taxpayer makes a payment of more than Rs. 10,000 in cash for the acquisition of an asset, the expenditure will be disregarded for determining the actual cost of the asset. Hence, it’s crucial for taxpayers acquiring assets to make all payments to the seller through banking channels.
Section 269SS
of the Income Tax Act prohibits a taxpayer from accepting loans or deposits, or any sum exceeding Rs. 20,000 in cash. All loans and deposits exceeding this amount must be received through a banking channel. However, Section 269SS does not apply when taking a loan or deposit from certain entities or individuals, including:
- Government entities
- Banking companies, post office savings banks, or co-operative banks
- Entities established by Acts of the Central, State, or Provincial governments.
- Government companies defined in clause (45) of section 2 of the Companies Act, 2013
- Institutions, associations, or bodies officially notified by the Central Government in the official gazette.
Additionally, if both the lender and borrower have agricultural income and no taxable income under the Income Tax Act, Section 269SS does not apply.
Penalty under Section 269SS
Penalty for non-compliance with the provisions of Section 269SS may result in a penalty equivalent to the amount of the loan, deposit, or specified sum accepted.
Section 269ST
of the Income Tax Act prohibits any person from receiving an amount of INR 2 Lakhs or more in cash under the following circumstances:
- In sum from a person in a day;
- In respect of a single transaction; or
- For transactions related to a single event or occasion from one person.
However, the provisions of Section 269ST do not apply when cash exceeding Rs.2 lakhs is received from the following entities:
- Government;
- Any banking institution, post office savings bank, or cooperative bank.
- An institution, association, or body notified by the Central Government in its official gazette.
Penalty under Section 269ST
Under Section 271DA, non-compliance with the provisions of Section 269ST incurs a penalty equal to the amount of the receipt.
Section 269T
of the Income Tax Act stipulates that any branch of a banking company, co-operative society, firm, or individual cannot repay any loan or deposit except by an account payee cheque or account payee bank draft drawn in the name of the person who provided the loan or deposit if:
- The loan or deposit amount, along with interest, is INR 20,000 or more; or
- The total amount of loans or deposits held by the individual, either solely or jointly with another person, on the repayment date, along with interest, is INR 20,000 or more.
However, the provisions of Section 269T do not apply when the loan is repaid or deposit accepted from the following:
- Government;
- further banking company, post office saving bank, or co-operative bank
- further corporation established by a Central, State, or Provincial Act
- further Government company as defined in clause (45) of section 2 of the Companies Act, 2013
- An institution, association, or body notified by the Central Government in the official gazette.
Penalty under Section 269T:
Failure to adhere to the provisions of section 269T attracts a penalty under section 271E, equivalent to the amount of the loan or deposit repaid.
Conclusion:
In conclusion, understanding the intricacies of cash transactions within audit cases is imperative for businesses to navigate tax regulations effectively. By adhering to prescribed thresholds and seeking professional guidance, businesses can ensure compliance and foster financial transparency. Cash Transactions in Audit Cases the above details outline various sections of the Income Tax Act related to cash transactions, loans, and deposits.
These sections include 40A(3), 43, 269SS, 269ST, and 269T, each with specific provisions and penalties for non-compliance. These provisions aim to regulate cash transactions, loans, and repayments to ensure transparency and discourage the use of cash in large transactions. Cash Transactions in Audit Cases Failure to comply with these provisions may result in penalties equivalent to the amount involved in the transaction. For further inquiries or assistance, please feel free to contact our team or visit our website.
Sources : https://cleartax.in/glossary/cash-transaction/
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