Overview: Income tax law restricts certain cash receipts, loans, repayments and business payments to discourage unaccounted transactions. The applicable limits depend on the nature of the transaction, the parties involved and the relevant tax year. The Income-tax Act, 2025 came into force from 1st April 2026, while the Income-tax Act, 1961, continues to govern relevant earlier tax years and proceedings. Businesses must identify the applicable law before assessing a transaction.
Cash remains common in retail trade, property dealings, lending and day-to-day business operations. However, accepting or paying cash beyond prescribed limits can lead to substantial penalties or the disallowance of business expenses. Splitting a transaction into smaller amounts does not necessarily avoid these restrictions.
The Income-tax Act, 2025 came into force on 1st April 2026, with the Income-tax Rules, 2026, providing the supporting framework. Businesses should therefore review both the transaction and the tax period involved before relying on a section number, threshold or exception.
Cash transaction limits: A quick reference
The following table summarises the principal restrictions. The new Act references apply to transactions governed by the Income-tax Act, 2025; the corresponding 1961 Act provisions remain relevant for earlier periods.
| Type of transaction | Limit or trigger | Applicable provision |
|---|---|---|
| Receiving cash from a person | ₹2 lakh or more, tested by person per day, single transaction, or transactions relating to one event or occasion | Section 186 of the 2025 IT Act; Section 269ST of the 1961 Act |
| Accepting loans, deposits or specified sums | ₹20,000 or more, subject to the statutory aggregation rules and exceptions | Section 185 of the 2025 Act; Section 269SS of the 1961 Act |
| Repaying loans, deposits or specified advances | ₹20,000 or more, subject to the statutory aggregation rules and exceptions | Section 188 of the 2025 Act; Section 269T of the 1961 Act |
| Paying business expenses in cash | Generally, more than ₹10,000 to a person in a day; a separate ₹35,000 limit applies to specified payments for plying, hiring or leasing goods carriages | Section 36(4) and related provisions of the 2025 Act; Section 40A(3) of the 1961 Act |
| Providing prescribed electronic payment facilities | Business turnover or gross receipts exceeding ₹50 crore in the immediately preceding tax year | Section 187 of the 2025 Act; Section 269SU of the 1961 Act |
These are not interchangeable limits. For example, the ₹2 lakh restriction concerns receipts, while the ₹20,000 restrictions concern specified loans, deposits, advances and repayments. Separate rules also apply to business expenditure and prescribed digital payment facilities.
1. Cash receipts of ₹2 lakh or more
Section 186 of the Income-tax Act, 2025 restricts a person from receiving ₹2 lakh or more in cash, except through the permitted modes. The restriction is tested in three ways:
- From one person in a day: Cash receipts from the same person are aggregated for the day.
- For a single transaction: The limit applies even if the payment is received in installments.
- For one event or occasion: Receipts linked to the same event or occasion from one person are considered together.
The permitted modes include an account-payee cheque, an account-payee bank draft, electronic clearing through a bank account and other prescribed electronic modes.
Example: A business sells equipment worth ₹2.4 lakh to a customer. The customer pays ₹1.2 lakh in cash on Monday and the balance on Tuesday. Splitting the payment across two days does not by itself make the arrangement compliant because the restriction also applies to the amount of a single transaction.
Similarly, receiving ₹1.2 lakh in cash from the same person for one transaction and another ₹90,000 for a separate transaction on the same day may trigger the restriction because the aggregate is ₹2.1 lakh.
Penalty: Section 451 of the 2025 Act allows a penalty equal to the amount received in contravention of Section 186. Under the earlier law, Sections 269ST and 271DA contain the corresponding restriction and penalty framework.
The Act provides specific exclusions, including certain receipts by government and banking institutions and transactions covered by the loan-related provisions. A business should confirm that an exclusion actually applies before accepting a restricted cash payment.
2. Cash loans, deposits and specified sums
Section 185 of the Income Tax Act 2025 regulates the acceptance of loans, deposits and specified sums. The ₹20,000 threshold is not limited to a single cash payment. The provision also considers relevant outstanding amounts from the same person when determining whether the threshold has been reached.
A specified sum can include money received as an advance in relation to the transfer of immovable property, whether or not the transfer ultimately takes place.
Example: A company has already accepted an unpaid loan of ₹15,000 from a director. The director then offers a further ₹10,000 in cash. The company should not assess the new amount in isolation: the outstanding loan and the additional amount must be considered under the statutory aggregation test.
The permitted modes include an account-payee cheque, an account-payee bank draft, electronic clearing through a bank account and other prescribed electronic modes.
Penalty: Section 450 of the 2025 Act allows the Assessing Officer to impose a penalty equal to the loan, deposit or specified sum accepted in contravention of Section 185. Under the 1961 Act, the corresponding provisions are Sections 269SS and 271D.
The law contains specific exclusions, including certain transactions involving government and banking institutions. It also provides particular treatment for specified agricultural transactions. These are limited statutory exceptions, not a general exemption for informal or family loans.
3. Cash repayment of loans and deposits
Section 188 of the 2025 Act restricts the repayment of specified loans, deposits and advances in cash where the relevant amount, including applicable interest or aggregated balances, reaches ₹20,000 or more.
The test may include the amount being repaid, the relevant outstanding loan or deposit balances and interest. Businesses should therefore check the full balance rather than only the principal amount of an individual repayment.
Example: A company proposes to repay a loan of ₹18,000 in cash, with ₹3,000 of interest payable. The total is ₹21,000. The company should assess the repayment against Section 188 rather than treating the principal amount alone as the relevant figure.
The provision permits specified banking and electronic modes and contains exclusions for certain repayments. Section 453 of the 2025 Act allows a penalty equal to the loan, deposit or specified advance repaid in contravention of Section 188.
For transactions governed by the earlier Act, Sections 269T and 271E contain the corresponding restriction and penalty provisions.
4. Cash payments for business expenses
Section 36 of the Income-tax Act, 2025 contains rules for certain business payments made otherwise than through specified banking, online or other prescribed electronic modes.
Generally, where a payment or aggregate of payments to a person in a day exceeds ₹10,000, the expenditure may be disallowed under the applicable provision. A separate threshold of ₹35,000 applies to specified payments for plying, hiring or leasing goods carriages.
The rule is relevant to purchases, contractor payments and other business expenditure. Businesses should track payments by recipient and date instead of looking only at the value of an individual invoice.
Example: A distributor pays a supplier ₹8,000 in cash in the morning and another ₹5,000 in cash later that day. The total cash payment to that supplier is ₹13,000. The distributor should check the applicable statutory rule and exceptions before claiming the full expenditure as a deduction.
The Income-tax Rules, 2026 prescribe circumstances in which the restriction does not apply. Rule 26 sets out these exceptions for payments governed by the new framework. For earlier tax periods, Section 40A(3) and Rule 6DD of the Income-tax Rules, 1962 are relevant.
An exception should not be assumed merely because a payment is commercially necessary or the recipient prefers cash. The facts and the conditions prescribed in the applicable rule must support the claim.
5. Businesses required to provide electronic payment facilities
Section 187 of the 2025 Act requires a business or professional whose turnover or gross receipts exceeded ₹50 crore in the immediately preceding tax year to provide specified electronic payment facilities, in addition to any other electronic modes it offers.
Rule 133 of the Income-tax Rules, 2026 identifies the prescribed facilities. These include RuPay debit cards, BHIM-UPI and BHIM-UPI QR codes, along with specified Central Bank Digital Currency wallet categories.
Section 452 provides for a penalty of ₹5,000 for every day during which the failure to provide the prescribed facilities continues.
Businesses should verify the current prescribed modes rather than assuming that offering any one digital payment application necessarily fulfils every requirement.
Common mistakes businesses should avoid
Cash-related non-compliance often arises from everyday accounting practices rather than deliberate tax planning. Businesses should watch for these errors:
- Splitting a large receipt into instalments without checking the single-transaction and event-based tests.
- Accepting a loan in cash without considering the lender’s outstanding balance.
- Repaying a loan after checking only the principal and ignoring interest or relevant aggregate balances.
- Paying the same supplier several times in cash on one day without checking the daily threshold.
- Assuming that a commercial reason automatically qualifies as a statutory exception.
- Applying a section number or rule from the 1961 Act to a tax year governed by the 2025 Act without checking the transition provisions.
Good records are essential. Retain invoices, receipts, loan agreements, repayment schedules, bank statements and supporting evidence for any claimed exception.
Tax audit and record-keeping
Cash transactions should be reviewed during bookkeeping, bank reconciliation and tax-audit preparation. A business may need to establish who paid or received the money, the purpose of the transaction, the date, the amount and the payment mode.
For tax years governed by the Income-tax Act, 2025, tax-audit reporting is under Section 63 and Form No. 26 is prescribed by Rule 47 of the Income-tax Rules, 2026. For FY 2025-26 (AY 2026-27), the applicable tax-audit forms remain Forms 3CA, 3CB and 3CD under the earlier framework.
The correct reporting requirement depends on the tax year and the taxpayer’s circumstances. Businesses should not assume that the new form applies retrospectively to an earlier period.
Setindiabiz Support
Setindiabiz supports businesses with accounting process outsourcing, bookkeeping, transaction reconciliation, tax-return preparation and continuous tax compliances. These services help businesses maintain consistent records of cash receipts, loan transactions, supplier payments and supporting documents.
We also provides virtual CFO support and GST return services for businesses seeking more organised financial and compliance processes. Regular review of transaction records can help identify cash-limit issues before tax-return and audit work is completed.
FAQs
There are different single cash limits for every transaction. Section 186 of the Income-tax Act, 2025 restricts specified receipts of ₹2 lakh or more. Sections 185 and 188 regulate specified loans, deposits, advances and repayments at the ₹20,000 threshold, subject to their respective aggregation rules and exceptions. Business-expense rules have separate limits.
Not necessarily. Section 186 considers receipts for a single transaction and transactions relating to one event or occasion, as well as the aggregate received from one person in a day. Dividing a payment into installments does not automatically avoid the restriction.
Under Section 451 of the Income-tax Act, 2025, the penalty may equal the amount received in contravention of Section 186. For relevant earlier tax periods, Section 271DA of the Income-tax Act, 1961 is the corresponding penalty provision for Section 269ST.
No. The general rule restricts the deduction for specified payments exceeding ₹10,000 to a person in a day when made outside the prescribed modes. The law and applicable rules provide exceptions, and a separate ₹35,000 threshold applies to specified goods-carriage payments. The relevant tax year and supporting facts must be checked.
The Income-tax Act, 2025 came into force on 1st April 2026. The earlier Act continues to govern relevant earlier tax years and proceedings under the transition and savings provisions. Businesses should identify the applicable tax year before relying on section numbers, forms or exceptions.
Cash transaction compliance requires more than checking whether a payment crosses a single threshold. Businesses must consider the type of transaction, the parties involved, related balances, the payment date and the exceptions available under the applicable law.
The Income-tax Act, 2025 governs tax years beginning on or after 1 April 2026, while the earlier Act remains relevant to prior periods and proceedings. Maintaining complete transaction records and reviewing cash payments regularly can reduce the risk of penalties and expenditure disallowances.
Official references
- Income-tax Act, 2025 and Income-tax Rules, 2026
- Section 186 — Mode of undertaking transactions
- Section 185 — Loans, deposits and specified sums
- Section 188 — Repayment of loans, deposits and specified advances
- Rule 26 — Exceptions for specified cash business payments
- Rule 133 — Prescribed electronic payment modes
- Income-tax Department FAQs on the transition to the new Act
