India has introduced stringent rules and limits on cash transactions to promote a digital economy and curb black money, tax evasion, and money laundering. Violations can lead to severe penalties. [1, 2, 3, 4]
Key cash rules and limits under the Income Tax Act include:
Restrictions on Cash Transactions (Section 269ST) [3]
You are prohibited from receiving an amount of ₹2 lakh or more in cash:
- In aggregate from a single person in one day.
- In respect of a single transaction.
- In respect of transactions relating to one event or occasion from a single person. [3]
Penalty: A penalty equal to 100% of the amount received is imposed on the recipient of the cash. [3]
Limits on Business Expenses and Asset Purchases
- Business Expenses: No tax deduction is allowed for any business expense where a cash payment exceeding ₹10,000 is made to a single person in a single day. For payments made to transporters for plying, hiring, or leasing goods carriages, the limit is ₹35,000.
- Capital Assets: If a payment for acquiring a capital asset (e.g., machinery, property) exceeds ₹10,000 in cash to a single person in a day, depreciation benefits cannot be claimed on that expenditure. [4, 7, 8]
Limits on Loans, Deposits, and Property Transactions
- Accepting/Taking Loans or Deposits (Section 269SS): You cannot accept any loan, deposit, or advance related to property transactions of ₹20,000 or more in cash.
- Penalty: 100% of the loan or deposit amount is imposed on the recipient.
- Repaying Loans or Deposits (Section 269T): You cannot repay any loan or deposit (plus interest) of ₹20,000 or more in cash.
- Penalty: 100% of the amount repaid in cash is imposed on the repayer.
- Property Transactions: Cash payments exceeding ₹20,000 for a property sale can attract a 100% penalty. The Supreme Court has directed courts and sub-registrars to report any suits or property deeds involving cash transactions of ₹2 lakh or more to the Income Tax Department. [6, 9, 10, 11, 12]
Banking and Other Limits
- Cash at Home: While keeping cash at home is not illegal, if the Income Tax Department finds unexplained cash during a search or seizure, the amount may be treated as unexplained income and taxed heavily, potentially up to 84% including penalties.
- Bank Deposits/Withdrawals:
- Deposits: Cash deposits in a savings account aggregating to ₹10 lakh or more in a financial year are reported by the bank to the IT Department. For current accounts, the limit is ₹50 lakh.
- Withdrawals: Banks must report cash withdrawals over ₹10 lakh from a savings account in a financial year. TDS (Tax Deducted at Source) is applicable on cash withdrawals exceeding ₹1 crore in a financial year (or over ₹20 lakh if ITRs have not been filed for the past three years).
- PAN Requirement: Providing your Permanent Account Number (PAN) is mandatory for any single cash deposit exceeding ₹50,000.
- Donations: Cash donations to a registered trust or political party exceeding ₹2,000 are not eligible for deduction under Section 80G.
- Health Insurance: Cash payments for health insurance premiums are not allowed as deductions under Section 80D of the IT Act. [1, 2, 7, 13, 14, 15, 16, 17, 18]
To ensure compliance, the government encourages the use of digital and banking channels such as account payee cheques, bank drafts, NEFT, RTGS, IMPS, and UPI. [4, 6]
AI responses may include mistakes.
[3] https://www.bajajfinserv.in/about-section-269st-of-income-tax-act
[5] https://www.bajajfinserv.in/investments/269st-of-income-tax-act
[7] https://incometaxindia.gov.in/Booklets%20%20Pamphlets/19-say-no-to-cash-transaction.pdf
[8] https://cleartax.in/s/section-40a3-of-income-tax-act
[11] https://cleartax.in/s/update-sec-269st-clarification-repayment-loan-instalments-cash
[12] https://www.instagram.com/reel/DR7elVBj7d3/
[13] https://www.angelone.in/news/taxation/high-value-cash-transactions-may-attract-84-tax-here-is-how
[14] https://www.axis.bank.in/blogs/deposits/cash-deposit-limit-in-saving-account
[15] https://www.ujjivansfb.bank.in/banking-blogs/personal-finance/cash-deposit-limits-10-lakh-rule
[16] https://icmai.in/TaxationPortal/upload/DT/Article/4.pdf
[17] https://www.incometax.gov.in/iec/foportal/help/tds-on-cash-withdrawal-us-194n-faq
[18] https://www.shriramlife.com/blog/advice/how-much-money-i-can-deposit-in-bank-without-tax
India’s rules on cash transactions, primarily governed by the Income Tax Act and RBI regulations, have become stricter to promote digital payments and curb black money. The key provisions focus on restricting large cash receipts, payments, and deposits.
Key Cash Transaction Limits and Rules
- Receiving Cash: A person is prohibited from receiving ₹2 lakh or more in total from a single person in a single day, for a single transaction, or for one event/occasion. A penalty equal to the amount received in violation will be imposed on the recipient.
- Business Expenses: Businesses cannot claim a tax deduction for cash expenses exceeding ₹10,000 made to a single person in a single day.
- Loans and Deposits: Accepting or repaying any loan, deposit, or specified advance (e.g., for property deals) in cash is prohibited if the amount is ₹20,000 or more. The penalty is 100% of the amount involved.
- Donations and Health Insurance:
- Cash donations to a registered trust or political party exceeding ₹2,000 are not eligible for tax deductions.
- Health insurance premiums paid in cash are not allowed as deductions under the Income Tax Act.
Reporting and Monitoring by Banks
Banks and financial institutions are required to report high-value cash transactions to the Income Tax Department.
- Cash Deposits (Savings Account): Aggregate cash deposits of ₹10 lakh or more in a savings account in a financial year are reported.
- Cash Withdrawals: TDS (Tax Deducted at Source) is applicable on cash withdrawals exceeding ₹1 crore in a financial year for those who file tax returns. For non-filers, this limit is ₹20 lakh, with a higher TDS rate applying to amounts above ₹1 crore.
- PAN Requirement: Providing your Permanent Account Number (PAN) is mandatory for any single cash deposit exceeding ₹50,000.
Penalties for Unexplained Cash
While keeping cash at home is not illegal, if the source of a large amount of cash found during a search or seizure cannot be satisfactorily explained and documented, it can be taxed heavily (up to 84% including tax, surcharge, and penalty) as unexplained income.
To stay compliant, it is recommended to use digital and banking channels for large transactions and maintain a clear paper trail and documentation for all financial dealings.