Table of Contents
Income Tax Rules – Key Cash Transaction Limits in India
Cash transactions under the Income-tax Act are subject to strict limits. Non-compliance may lead to expense disallowance, 100% penalty exposure, and tax scrutiny.
1. Cash Expense Limit – Sec 40A(3)
• Cash payment above INR 10,000 per day per person is generally not allowed as business expense
• For transporters, limit is INR 35,000 per day
• Impact: Expense may be disallowed, resulting in higher taxable income
• Example: Paying INR 25,000 in cash to a vendor may lead to full disallowance of INR 25,000
2. Cash Loan / Deposit Acceptance – Sec 269SS
• Cannot accept INR 20,000 or more in cash towards:
– Loans
– Deposits
– Property advances
• Applies to single transaction as well as aggregate amount
• Penalty under Sec 271D = 100% of amount accepted in cash
3. Cash Loan Repayment – Sec 269T
• Cannot repay INR 20,000 or more in cash
• Includes both principal and interest repayment
• Penalty under Sec 271E = 100% of amount repaid in cash
4. Cash Receipt Limit – Sec 269ST
• Cannot receive INR 2,00,000 or more in cash:
– In a single transaction, OR
– From one person in a day, OR
– For one event or occasion
• Penalty under Sec 271DA = 100% of amount received
• Example: Receiving INR 2.5 lakh cash against sale may attract penalty equal to INR 2.5 lakh
5. High-Value Cash Deposits – SFT Reporting
Banks report the following to the Income Tax Department:
• Savings Account cash deposits ≥ INR 10 lakh per year
• Current Account cash deposits ≥ INR 50 lakh per year
This is reporting compliance but may trigger scrutiny or notices if not aligned with ITR, AIS, or books of account.
6. Property Transactions
• Cash payment of INR 20,000 or more for property may violate Sec 269SS
• Cash receipt of INR 2,00,000 or more may violate Sec 269ST
Income tax Compliance Best Practices
• Use RTGS / NEFT / cheque / banking channels
• Maintain proper invoices and supporting documents
• Avoid artificial splitting of transactions
• Reconcile books with AIS, Form 26AS, and ITR
• Consult your Chartered Accountant regularly
Cash transactions are heavily restricted under the income tax act. Genuine transactions can also attract penalties if carried out in cash beyond prescribed limits. Non-compliance can lead to 100% penalty exposure, disallowance of expenses, and scrutiny proceedings. Many penalties arise from property transactions, loan entries in books, and high-value cash sales beyond INR 2 lakh, even where transactions are genuine.
