The Income Tax Act, 2025, sets out strict limits on cash dealings across a number of transactions to enhance transparency and reduce the scope for tax evasion. Whether it involves accepting cash, repaying loans, making business payments, donating funds or buying property, crossing the prescribed limits can have tax consequences.
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Below are the key cash transaction limits under the law.
Rs 2 Lakh Ceiling On Cash Collections
The Income Tax Act places a cap on the amount of cash that can be received in certain situations. Section 269ST bars individuals and businesses from accepting Rs 2 lakh or more in cash from one person in a single day, for one transaction, or for multiple transactions connected to the same event. Failure to comply can invite a penalty under Section 271DA equal to the amount accepted.
Cash Loans And Deposits
Tax provisions impose separate restrictions on cash-based borrowing and repayments. Section 269SS prohibits the acceptance of cash loans, deposits or property-related advances worth Rs 20,000 or more.
Repayments
Section 269T disallows the repayment of loans or deposits of Rs 20,000 or above in cash. Any breach can result in penalties matching the transaction value under Sections 271D and 271E.
Tax Deduction Unavailable For High-Value Cash Expenses
Businesses making sizeable cash payments should be aware of the deduction limits. Any cash payment exceeding Rs 10,000 to one person in a single day is not eligible for a tax deduction. In the case of transport operators, the limit has been set at Rs 35,000.
Property Transactions Above Threshold Come Under Tax Scrutiny
Using cash in property transactions beyond the prescribed threshold can prove costly. Under Section 269SS, cash advances or payments of Rs 20,000 or more relating to the transfer of immovable property are not permitted. Non-compliance may lead to penalties as well as tax scrutiny.
Cash Donations Above Rs 2,000 Lose Tax Benefits
Taxpayers cannot claim a deduction under Section 80G for cash donations exceeding Rs 2,000. To avail of the tax benefit, contributions must be made through recognised banking channels rather than in cash.
No Cap On Withdrawals, But Tax Rules Still Apply
Although there is no legal limit on withdrawing cash from your own bank account, larger transactions are not entirely free from tax oversight. Such withdrawals may be reported to the Income Tax Department, and TDS under Section 194N may apply if the amount exceeds the notified threshold.
Multiple Small Cash Payments Can Still Attract Penalties
Paying in smaller cash instalments instead of one lump sum is unlikely to help avoid tax rules. If the payments are linked to the same deal, event or occasion, they may be treated as a single transaction, exposing the parties to penalties.
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