The Income Tax Act 2025 has limits on several types of cash transactions to promote transparency and curb tax evasion. Exceeding the prescribed cash transaction limits leads to serious consequences, such as 100 percent penalties equal to the transaction amount in some cases. Taxpayers should fully comprehend the cash transaction limits to avoid penalties or tax scrutiny.
1. Cash receipt limit
A person cannot receive Rs 2 lakh or more in cash from a single person in a day or for a single transaction or for multiple transactions related to a single event or occasion. If a person receives the amount in cash over the above specified limit of Rs 2 lakh or more, he is liable to pay a penalty under section 271DA equal to the amount received in cash.
2. Cash loan or deposit limit
A person cannot accept a loan, deposit or specified sum such as an advance or otherwise for the transfer of immovable property of Rs 20,000 or more in cash. Such transactions should be made through a bank account like an account payee cheque, an account payee bank draft or an electronic transfer. If you accept such a payment in cash, then the Income Tax Department can levy a penalty equal to the exact amount of cash you accepted.
3. Cash repayment limit
A person cannot repay a loan, deposit or advance for the transfer of immovable property of Rs 20,000 or more in cash. Such repayments must be made via an account payee cheque, bank draft or electronic transfer. If you make such a repayment in cash, the tax authority will impose a penalty equal to 100 percent of the cash amount repaid.
4. Business expense in cash
A business cannot claim a tax deduction if a payment for an expenditure to a person in a day exceeds Rs 10,000 and it is made by cash rather than an account payee cheque, bank draft or electronic clearing system. If the payment is made for plying, hiring or leasing goods carriages, the ceiling of Rs 35,000 will be considered instead of Rs 10,000.
5. Cash donation limit
Cash donations of more than Rs 2,000 are not eligible for a tax deduction under Section 80G. Donations above Rs 2,000 should be made in any mode other than cash to qualify under Section 80G.
6. Cash withdrawal from bank
The Reserve Bank of India mandates that there are no statutory limits on how much cash you can withdraw from your own savings account. However, taxpayers should note that individual banks set daily operating limits and government tax laws may impose penalties on large withdrawals.
7. Splitting cash transactions
Splitting a large cash transaction into smaller ones may not help avoid cash transaction rules. If all the payments relate to the same transaction or event, they may still be regarded as a single transaction and subject to penalties.
