19.1 Finance Bill provides that if any recipient receives Rs. 3 lakh or more in cash, he will be penalised with an amount equal to the amount received by him.
19.2 For following transactions, a person will be liable to penal consequences if he accepts Rs. 3 lakhs or more cash:
i) From one person in a day:
Example: Mr. A purchases furniture worth Rs. 2 lakhs; and white goods worth Rs. 2 lakhs from Mr. B. Although both are separate transactions, Mr. B cannot accept an amount exceeding Rs. 3 lakhs in cash in one day. Whether the sale transactions are entered into in one day or over several days is not relevant.
ii) For one transaction:
Example: Mr. X wishes to buy a property of say Rs. 25 lakhs from Mr. Y. Mr. X proposes to pay Rs. 2.5 lakh every week to Mr. Y. However, the same will not be permitted because it is for one single transaction of purchase of property. The daily limit is not relevant.
iii) For transactions relating to one event or occasion from one person:
Example: ABC Pvt. Ltd. and DEF Pvt. Ltd. are jointly organising a 2-day orientation for their employees. They have appointed XY & Co. (Partnership Firm) as event managers. Their charges are say Rs. 2 lakhs per day. Now if ABC Pvt. Ltd. and DEF Pvt. Ltd. want to pay Rs. 2 lakhs each in cash, XY and Co. cannot accept it as the payment is for one single event (the orientation course). Here, limit per person or per transaction is not relevant.
These restrictions will affect contracts of catering, marriage functions, etc. where cash transactions are frequent.
19.3 If the person can establish that there were sufficient reasons due to which he had to accept the funds in cash, then there will be no penalty.
19.4 Note: As usual, all penalties are for people who bring their financial transactions on record. Consider the illustration of the payer & receiver both – do not bring the cash transactions to records. They can’t be penalised. And it is believed, there is a huge cash economy for which these provisions have no effect.