Cash and Account Transactions: Income Tax Limits You Must Know About

As India continues to move toward a more digitised and transparent economy, the role of the Income Tax Department in monitoring high-value financial transactions has become more proactive than ever. For individuals and businesses alike, it is crucial to understand that certain cash and account transactions, if they exceed prescribed limits are automatically flagged, reported, and, in some cases, penalised. These limits are not just arbitrary numbers; they are tools designed to curb black money, unaccounted wealth, and tax evasion. For taxpayers, the message is clear-maintain clean records, understand the thresholds, and ensure full compliance.

Cash Deposits Above ₹10 Lakh in Savings Accounts

One of the most common triggers for scrutiny is large cash deposits into savings bank accounts. If, over the course of a financial year, the total amount of cash deposited into your savings account exceeds ₹10 lakh, the bank is required to report it to the Income Tax Department under the Statement of Financial Transactions (SFT) framework. What makes this rule even more important is that it is cumulative, meaning multiple smaller deposits can collectively breach the threshold. For the depositor, it becomes vital to ensure that the source of such cash is legitimate and supported by documentation, especially if such deposits are routine in nature.

Fixed Deposits and the ₹10 Lakh Mark

Similar to savings account deposits, cash invested in fixed deposits is also closely watched. If you deposit more than ₹10 lakh in cash into fixed deposit schemes, whether in a single transaction or in installments across different branches or banks, that transaction will also be reported. While fixed deposits are typically made through digital or cheque payments, cash transactions of such magnitude are relatively rare, and when they do happen, they invite further scrutiny. Hence, individuals are encouraged to use non-cash methods to invest in FDs, ensuring both transparency and ease of recordkeeping.

Buying Property? Cash Payments Above ₹30 Lakh Will Be Reported

The purchase or sale of immovable property has long been an area susceptible to black money and unaccounted transactions. To combat this, any property transaction valued at more than ₹30 lakh whether paid in cash, through cheque, or bank transfer, is automatically reported by the registrar to the Income Tax Department. Even partial payments made in cash toward such transactions are flagged. As a buyer or seller, it is advisable to avoid any cash dealings in property transactions. Ensuring that the entire transaction is done through traceable banking channels not only provides legal protection but also helps in avoiding unnecessary attention from tax officials.

Receiving More Than ₹2 Lakh in Cash? It Could Cost You

Perhaps one of the lesser-known but highly significant rules under the Income Tax Act is Section 269ST. According to this provision, no person can receive an amount of ₹2 lakh or more in cash from a single person in a single day. The law also prohibits receiving ₹2 lakh or more in cash against a single transaction or from a single person for multiple transactions that together add up to that amount. This rule applies to individuals, businesses, and even in personal scenarios such as weddings or gifts. The penalty for violating this provision is equal to the amount received, which means if you receive ₹2.5 lakh in cash, you could be penalised with a ₹2.5 lakh fine. The safest course? Avoid large cash receipts altogether, unless exempted (like transactions with banks, post offices, or government institutions).

Business Expenses Paid in Cash May Not Be Allowed as Deductions

Businesses and professionals must also tread carefully when it comes to cash transactions. As per Section 40A(3) of the Income Tax Act, any expenditure exceeding ₹10,000 made in cash (₹35,000 in case of payments to transporters) is disallowed as a deductible expense while computing taxable income. This means that even if the expense is genuine and business-related, if paid in cash beyond the permitted limit, you lose the tax benefit of claiming it as a deduction. Hence, to maintain financial hygiene and optimize tax liability, it is always advisable to make such payments via cheque, bank transfer, or digital modes.

Cash Gifts Above ₹50,000 Can Be Taxable

In India, receiving cash gifts is common, especially during weddings, festivals, or family functions. However, under the Income Tax Act, if you receive cash gifts exceeding ₹50,000 in aggregate during a financial year from non-relatives, the entire amount becomes taxable under the head “Income from Other Sources.” There are exceptions, gifts from specified relatives such as parents, siblings, spouse, or lineal ascendants and descendants are tax-exempt. Additionally, gifts received on the occasion of one’s marriage, or through inheritance, are also not taxed. That said, it is advisable to document all high-value gifts clearly to avoid later disputes or tax demands.

When You Must Quote PAN or Aadhaar for Transactions

To improve traceability, the Income Tax Rules mandate quoting of PAN (or Aadhaar, in some cases) for certain high-value financial transactions. These include cash deposits or withdrawals above ₹50,000 at once, purchase of mutual funds or shares above ₹50,000, buying or selling of immovable property exceeding ₹10 lakh, and the purchase of jewellery or bullion worth over ₹2 lakh. Failing to quote your PAN when required can lead to the denial of the transaction or future penalties, as it violates the statutory compliance framework.

TDS on Cash Withdrawals

Under Section 194N of the Income Tax Act, the government has introduced a mechanism to discourage large cash withdrawals. If you have filed income tax returns for the past three years, a TDS (Tax Deducted at Source) of 2% will be levied on cash withdrawals exceeding ₹1 crore in a financial year. If you have not filed returns, TDS is applicable at 2% on withdrawals exceeding ₹20 lakh, and at 5% on amounts above ₹1 crore. This rule is part of the government’s broader push to ensure that large cash dealings are minimised and brought into the formal economy.

Know the Limits, Stay Compliant

In today’s world of real-time financial monitoring and data analytics, the Income Tax Department no longer needs to wait until tax season to flag anomalies. Banks, credit card issuers, registrars, mutual fund houses, all are now data partners in monitoring your financial activity. It is not illegal to deposit money, pay your bills, or receive a gift. But once certain cash and account transaction limits are crossed, the onus is on you to explain and document the legitimacy of the transaction.

The safest path forward is simple: wherever possible, avoid large cash transactions, choose digital or banking channels, keep records, and stay informed. Whether you’re an individual taxpayer, a salaried employee, a professional, or a business owner, understanding these limits and operating within them is no longer optional, it’s a necessity.

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