Cash Transaction Limits Under the Income Tax Bill 2025
The Income Tax Bill 2025 introduces significant changes to cash transaction limits in India. This video provides a comprehensive overview of the new rules, covering:
- Restrictions on cash receipts (₹2 lakh limit)
- Limits on cash expenses for businesses (₹10,000/₹35,000)
- Rules for accepting and repaying loans in cash (₹20,000 limit)
- TDS on cash withdrawals (₹1 crore/₹3 crore)
- Regulations for cash donations
- Impact on depreciation of assets purchased in cash
- And much more!
New Cash Transaction Limits Under the Income Tax Act 2025 : The Income Tax Bill 2025 introduces various restrictions on cash transactions to promote digital payments and curb tax evasion. The relevant provisions are covered under Clause 36, Clause 186, Clause 185, and Clause 188.
1. Restrictions on Receiving Cash (Clause 186)
Here’s a table summarizing the penalties for violating section 186 of the Income-tax Bill 2025, as well as other key aspects of the clause:
| Aspect | Description |
|---|---|
| Restriction | No person shall receive an amount of two lakh rupees or more. This applies (a) in aggregate from a person in a day; or (b) in respect of a single transaction; or (c) in respect of transactions relating to one event or occasion from a person. |
| Permitted Modes | To receive the specified amount, transactions must occur through: * Account payee cheque * Account payee bank draft * Electronic clearing system through a bank account * Any other prescribed electronic mode |
| Exceptions | Sub-section (2) specifies that sub-section (1) shall not apply to: * Any receipt by the government, any banking company, post office savings bank, or co-operative bank * Transactions of the nature referred to in section 185 * Such other persons or class of persons or receipts, as notified by the Central Government |
| Penalty Amount | The penalty can be equal to the sum received in violation of section 186. |
| Authority | The Assessing Officer is responsible for imposing the penalty. |
| Reasonable Cause | A penalty will not be imposed if the person proves there were good and sufficient reasons for the contravention. |
| Relevant Section | Clause 451 of the Income-tax Bill 2025 discusses the imposition of a penalty for failure to comply with the provisions of clause 186. |
| Purpose | This clause intends to curb cash transactions and promote digital payment methods for greater transparency. |
| Related Clause | Clause 187 of the Bill seeks to provide for accepting payment through prescribed electronic modes. |
| Relevant Chapter | Chapter XII of the Income-tax Bill, 2025, covers the mode of payment in certain cases. |
| Other Relevant Clauses | Clause 185 addresses restrictions on taking or accepting loans, deposits, and specified sums in cash, with certain exceptions. Clause 188 outlines restrictions on the repayment of certain loans, deposits, or specified advances in cash, again with specific exceptions. |
| Interpretation Clause | Clause 189 defines certain expressions, including “banking company, specified sum etc”. |
- Penalty for violation: An amount equal to the sum received in cash may be levied as a penalty under Clause 446.
- “specified sum” means any sum of money receivable, whether as advance or otherwise, in relation to transfer of an immovable property, whether or not the transfer takes place;
2. Restrictions on Acceptance of Cash Loan / Mode of taking or accepting
certain loans, deposits and specified sum.
Here is a breakdown of cash transaction limits according to Clause 185 of the Income Tax Bill 2025, in tabular form:
| Aspect | Details | Clause |
|---|---|---|
| General Restriction | No person shall take or accept from another person any loan or deposit or specified sum, except through specified modes. | 185(1) |
| Permitted Modes | The permitted modes for taking or accepting loans, deposits, or specified sums are: | 185(1) |
| * Account payee cheque | ||
| * Account payee bank draft | ||
| * Electronic clearing system through a bank account | ||
| * Any other prescribed electronic mode | ||
| Monetary Limit | The restriction applies if: | 185(1)(iii) |
| * The aggregate amount of loan, deposit, or specified sum is ₹20,000 or more. | ||
| * This limit also applies to the aggregate of any previously taken or accepted loan, deposit or specified sum by such person from such another person, which is remaining unpaid, whether due for repayment or not, as on the date of taking or accepting such amount as referred to in clause (i). | ||
| Nature of Restriction | This clause places a restriction on the manner of transacting (i.e., taking or accepting) loans, deposits, and specified sums, mandating the use of banking channels or prescribed electronic modes. | 185(1) |
| Definition of Loan/Deposit | “Loan or deposit” means loan or deposit of money. | 185(5) |
Meaning : “specified sum” means any sum of money receivable, whether as advance or otherwise, in relation to transfer of an immovable property, whether or not the transfer takes place; Clause 189(c)
Penalty : If a person takes or accepts any loan or deposit or specified sum in contravention of the provisions of section 185, the Assessing Officer may impose on him, a penalty equal to the amount of the loan or deposit or specified sum so
taken or accepted. (clause 450)
In summary, according to Clause 185(1) read with clause 185(1)(iii) of the Income Tax Bill 2025, any person cannot accept a loan, deposit, or specified sum of ₹20,000 or more in cash. The transaction needs to happen through account payee cheque, account payee bank draft, electronic clearing system, or other prescribed electronic means [185(1), 185(1)(iii)].
3. Restrictions on Cash Payments for Business Expenses (Clause 36)
Here’s a summary in tabular form of the treatment of business expenses exceeding ₹10,000 (or ₹35,000 for specific cases) paid in cash, according to the Income-tax Bill 2025 and our conversation history:
| Aspect | Details | Relevant Clause |
|---|---|---|
| General Rule | If a business incurs an expense where the payment or aggregate of payments made to a person in a day exceeds ₹10,000 and is not through a specified banking or online mode, then the expenditure will not be allowed as a deduction | Clause 36(4) |
| Exception | For payments made for plying, hiring, or leasing of goods carriages, the threshold is increased to ₹35,000 [from previous conversation]. | Clause 36(6) |
| Specified Modes | specified banking or online mode (Govt may Specify in Rules LIKE Payments should be made through: * Account payee cheque * Account payee bank draft * Electronic clearing system through a bank account * Any other prescribed electronic mode ] | Clause 36(4) |
| Compliance | Payments made through these specified modes will not be challenged, and it cannot be argued that the payment was not made in cash. | Clause 36(8) |
| Exceptions to the Rule | The provisions regarding payment mode may not apply in certain circumstances, considering available banking facilities and business expediency | Clause 36(7) |
| Additional Restrictions | Clause 185 addresses restrictions on taking or accepting loans, deposits, and specified sums in cash, with certain exceptions. Clause 186 provides, inter alia, for restriction on receiving an amount of rupees two lakh and above in modes other than the specified modes [from previous conversation]. | Clause 185, Clause 186 |
- Note : If a business incurs an expense exceeding ₹10,000 in cash per day, the expense will be disallowed from deductions while calculating taxable income.
3.Repayment of certain loans or deposits.
Clause 188 of the Income-tax Bill 2025, along with the penalty for its violation
| Aspect | Details | Relevant Clause |
|---|---|---|
| Restrictions on Repayment | Repayments must be made through: *Account payee cheque * Account payee bank draft drawn in the name of the person who made the loan or deposit or paid the specified advance * Electronic clearing system through a bank account, or any other prescribed electronic mode | Clause 188 |
| Conditions | The above restriction applies if: * The loan, deposit, or specified advance, together with any interest payable, OR * The aggregate amount of loans or deposits held by a person with a branch of a banking company or co-operative bank, OR * The aggregate amount of specified advances received by such person; if any of these is ₹20,000 or more. | Clause 188 |
| Exceptions | The restrictions do not apply to repayments of loans, deposits, or specified advances taken from: * The Government * Any banking company, post office savings bank, or co-operative bank * Any corporation established by a Central, State, or Provincial Act * Any Government company as defined under section 2 (45) of the Companies Act, 2013 * Any institution, association, or body or class of institutions, associations, or bodies notified by the Central Government | Clause 188 |
| Special Case | In the case of any deposit paid to a member by a primary agricultural credit society or a primary co-operative agricultural and rural development bank, or any loan repaid by a member to such a society or bank, the limit is ₹2 lakh instead of ₹20,000. | Clause 188 |
| Repayment via Account Credit | A branch of a banking company or co-operative bank may also make the repayment by crediting such loan or deposit to the savings bank account or current account, if any, with such branch of the person to whom such loan or deposit has to be repaid. | Clause 188 |
| Penalty | If a person repays any loan or deposit or specified advance referred to in Clause 188 otherwise than in accordance with the provisions of that section, the Assessing Officer may impose on him a penalty equal to the loan or deposit or specified advance so repaid. | Clause 453 [from conversation history] |
Note : “specified advance” means any sum of money in the nature of advance, by whatever name called, in relation to transfer of an immovable property, whether or not the transfer takes place.
4. Cash Withdrawal Limits & TDS (Clause 393 Table)
| Transaction Type | Cash Limit | TDS Rate | Clause |
|---|---|---|---|
| Cash withdrawals from banks, co-operative banks, or post offices | ₹1 crore in a year (for individuals & firms) | 2% | Clause 393 |
| Cash withdrawals by a co-operative society | ₹3 crore in a year | 2% | Clause 393 |
4.Depreciation not Allowed if Asset over Rs 10000 Purchased in Cash
Exclusion from actual cost: The payment or aggregate of payments exceeding ten thousand rupees in
a day for acquisition of an asset, made to a person in a mode otherwise than by specified banking or online mode, shall be excluded from the actual cost of the asset. (clause 39)
“Specified Banking or Online Mode” shall mean transaction by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode, as prescribed; [ Clause 66(36)]
5. Other New Cash Transaction Limits Under the Income Tax Act 2025
| Nature of Transaction | Cash Limit | Clause |
|---|---|---|
| Cash donations to a political party is not allowed | – | Clause 137 |
| Cash donation to a registered trust/charitable institution (for deduction under Chapter VIII-C) | ₹2,000 per donor | Clause 133 |
| Winning from lotteries, horse races, and gambling | ₹10,000 per transaction | Clause 393 |
Note
- The donation must be made as a sum of money.
- The term “charitable purpose” does not include any purpose that is wholly or substantially of a religious nature.
- To claim the deduction, the assessee’s return of income filed for any tax year must include information about the donation furnished by the institution or fund to the prescribed authority. This claim is subject to verification as per the risk management strategy formulated by the Board.
Key Takeaways for New Cash Transaction Limits Under the Income Tax Act 2025
- Cash receipts of ₹2 lakh or more in a single transaction are prohibited.
- Cash expenses exceeding ₹10,000 per day per person will be disallowed.
- Loan repayments of ₹20,000 or more in cash are not allowed.
- TDS at 2% is applicable on cash withdrawals exceeding ₹1 crore (₹3 crore for co-op societies).
- Donations exceeding ₹2,000 must be made through digital modes.
Refer following for New Cash Transaction Limits Under the Income Tax Act 2025