Income Tax Filing for AY 2024-25 is now open. File early for quicker refunds. Start Now eFile now

Cash Transaction - What is Cash Transaction?, Definition & Examples

What is a cash transaction?

A cash transaction is a mode of payment where cash is exchanged for goods or services at the time of purchase. Cash can be in the form of coins, notes, or other forms of money that are generally accepted. Cash transactions are usual and convenient for both consumers and businesses. It helps people avoid unnecessary spending and debt. Cash transactions also provide immediate income for sellers. However, cash transactions may also cause challenges. For instance, people might not have enough cash to purchase what they need.

Explanation of Cash Transaction

A cash transaction happens when someone immediately pays cash to purchase goods and services. Buying or selling stocks can be considered a cash transaction because it happens at the current price in the market. The money and the shares are exchanged as soon as the deal is made, even if it takes a few days to settle. However, a futures transaction cannot be considered a cash transaction. That's when someone agrees to buy or sell something at a certain price and quantity in the future. The money and the item are not exchanged right away. Using a credit card is not a cash transaction either because the person who buys something does not pay for it until they pay their credit card bill, which is uncertain.

Example of Cash Transactions

A person goes to a coffee shop and pays with a smartphone using a UPI app. The app transfers the money for the coffee directly from his bank account to the coffee shop's account. This is a cash transaction because there is no delay in the payment or the delivery of the product. If the person had used a credit card to pay for the coffee, He would only pay for it when he settled the "coffee" charge on his credit card bill