To curb black money, increase transparency, and promote digital payments, the Government of India has introduced several legal restrictions on cash transactions through provisions under the Income Tax Act, 1961, and other allied laws. Violation of these restrictions can lead to heavy penalties, disallowance of expenses, and other consequences.
Restriction: No deduction allowed for business expenditure if payment exceeding ₹10,000 is made in cash to a person in a single day.
Exception: Limit is ₹35,000 for transporters.
Penalty: 100% disallowance of such expense.
Restriction: No person can accept loans, deposits, or specified sums ₹20,000 or more in cash.
Must be received via account payee cheque, bank draft, or electronic clearing system.
Penalty (Section 271D): Equal to the amount received in violation.
Restriction: Repayment of any loan, deposit, or specified advance of ₹20,000 or more must not be made in cash.
Must be repaid via banking channels.
Penalty (Section 271E): Equal to the amount repaid in violation.
Restriction: No person can receive an amount of ₹2 lakh or more:
In aggregate from a person in a day, or
In respect of a single transaction, or
In respect of transactions relating to one event or occasion from a person.
Penalty (Section 271DA): 100% of the amount received.
Restriction: Capital expenditure in cash (above ₹10,000 per day per person) is not eligible for depreciation.
Ensures only banking-channel purchases qualify for capital asset claims.
Donations in cash exceeding ₹2,000 are not eligible for deduction under Section 80G.
Contributions to political parties must be made by banking channels (no deduction for cash contributions).
High-value property transactions have additional cash scrutiny under Benami Transactions (Prohibition) Act and Income Tax Act.
Certain transactions in rural areas, disaster relief, or government-notified cases may be exempt.
Small traders and agricultural transactions may have conditional relaxations.
Strict restrictions on cash transactions under Indian law aim to promote accountability, prevent tax evasion, and ensure traceability of financial dealings. Taxpayers, businesses, and individuals must carefully structure their transactions to comply with these norms or risk severe penalties.
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In order to enhance financial transparency, curb black money, and promote digital transactions, the Government of India has introduced a series of legal restrictions on cash transactions through various provisions in the Income Tax Act, 1961, and related laws. These restrictions are applicable to individuals, businesses, trusts, and other entities, with significant penalties for violations.
Provision: If an expenditure exceeding ?10,000 is incurred and paid in cash to a single person in a single day, it shall be disallowed as a deduction while computing business income.
For transporters, the limit is increased to ?35,000.
Objective: To encourage payment through banking channels for better accountability.
Exceptions: Certain cases where banking facility is not available, or payments made under specified circumstances (e.g., rural areas, emergencies).
Consequence: 100% of such expenditure will be added back to taxable income.
Restriction: No person shall accept loans, deposits, or specified sums in cash of ?20,000 or more.
Modes allowed: Account payee cheque, account payee bank draft, electronic clearing system (ECS), or other prescribed electronic modes.
Specified Sum: Any sum received in relation to the transfer of immovable property, regardless of whether the transfer takes place.
Penalty (Section 271D): Equal to the amount accepted in violation.
Restriction: No person shall repay any loan, deposit, or specified advance in cash of ?20,000 or more.
Applies to repayment to any person, including relatives or entities.
Must be through banking channels or electronic modes.
Penalty (Section 271E): Equal to the amount repaid.
Introduced by the Finance Act, 2017:
Restriction: No person can receive ?2,00,000 or more in cash:
In aggregate from a person in a day
In respect of a single transaction
In respect of transactions relating to one event or occasion from a person
Applicable to individuals, firms, companies, trusts, etc.
Penalty (Section 271DA): Equal to the amount received in violation.
Not applicable to:
Government, banking companies, post office savings banks, co-operative banks
Certain other entities as notified by the government
Restriction: Any capital expenditure (like machinery, equipment) paid in cash exceeding ?10,000 per day to a person shall not be included in the cost of the asset.
As a result, depreciation on such expenditure will not be allowed.
Objective: To ensure capital assets are acquired through traceable payment methods.
Cash donations exceeding ?2,000 are not eligible for deduction.
Donations must be made through banking channels to qualify for tax benefits.
Any contribution in cash to a political party will not be allowed as deduction.
Must be paid by cheque, draft, or digital modes under Section 80GGC/80GGB.
High-value property purchases or advances made in cash are closely scrutinized under the Benami Transactions (Prohibition) Act and other anti-money laundering laws.
In certain cases, cash transactions may still be allowed:
Transactions in rural areas without access to banking
Payments made on bank holidays or in emergencies
Persons or sectors notified by the CBDT under special circumstances
| Section | Nature of Restriction | Threshold | Penalty |
|---|---|---|---|
| 40A(3) | Business expense disallowed | > ?10,000 in cash | 100% disallowance |
| 269SS | Acceptance of loan/deposit in cash | ≥ ?20,000 | Equal to amount accepted |
| 269T | Repayment of loan/deposit in cash | ≥ ?20,000 | Equal to amount repaid |
| 269ST | Receipt of cash in excess | ≥ ?2,00,000 | Equal to amount received |
| 43(1) | Capital expense in cash | > ?10,000 | No depreciation allowed |
These restrictions serve as strong deterrents against cash-based transactions and are part of India’s broader agenda to formalize the economy, enhance financial transparency, and reduce tax evasion. Taxpayers, businesses, and professionals must ensure that all high-value transactions are routed through traceable banking methods to avoid penalties and ensure compliance.
| Ram Dutt Sharma Restrictions on Cash Transactions |
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