Daily Cash Transaction Limit Explained: Know the ₹2 Lakh Rule to Avoid Income Tax Penalties

As digital payments grow rapidly across India, the Income Tax Department has tightened monitoring of cash transactions to curb black money and tax evasion. Many people unknowingly deal in large cash amounts, which can violate tax laws and lead to notices or heavy penalties. Understanding the cash transaction limits under the Income Tax Act is essential to stay compliant and avoid trouble.

Cash Transaction Limit: ₹2 Lakh Per Day Rule

Under Section 269ST of the Income Tax Act, no person is allowed to receive more than ₹2 lakh in cash in a single day from one person.

This limit applies to all types of cash receipts, including:

• Gifts
• Loans
• Business payments
• Sale proceeds
• Any other cash transaction

👉 Receiving ₹2 lakh or more in cash from the same person on the same day is illegal, even if the amount is split into smaller payments.

Example

If someone gives or receives ₹3 lakh in cash in a day, the Income Tax Department can:

• Question the transaction
• Issue a notice
• Impose a penalty if the explanation is unsatisfactory

Cash Transactions Tracked by the Income Tax Department

Apart from the daily ₹2 lakh limit, several other cash-related activities are closely monitored:

• Bank deposits: Cash deposits above ₹10 lakh in a financial year
• Credit card bills: Cash payment exceeding ₹1 lakh
• Property deals: Buying or selling property worth ₹30 lakh or more
• Cash prizes: Receiving more than ₹50,000 in cash
• Business receipts: Cash received above ₹2 lakh from a single client

These transactions are routinely reported and scrutinised.

Heavy Penalty for Rule Violation

Violating Section 269ST attracts a penalty equal to the cash amount received.

• If you receive ₹2.5 lakh in cash, the penalty can also be ₹2.5 lakh
• The rule applies to:
  • Salaried individuals
  • Business owners
  • Professionals

Tax experts warn that even genuine transactions can come under scrutiny if limits are crossed.

How to Avoid Income Tax Notices

To stay safe and compliant, follow these simple steps:

• Use bank transfers, UPI, or digital payments for major transactions
• Maintain proper records, bills, and receipts
• Document gifts and loans in writing
• Avoid large cash dealings unless absolutely necessary
• Always remember the ₹2 lakh daily cash limit

Rules for Businesses and Banks

Businesses must be extra cautious:

• Accepting more than ₹2 lakh in cash from a customer is a violation
• Proper accounting and digital receipts are mandatory

Banks and NBFCs are legally required to report large cash transactions to tax authorities.

Why Digital Transactions Matter

The government’s push towards a Digital India and cashless economy aims to:

• Reduce tax evasion
• Track black money
• Improve transparency
• Simplify tax return filing

With advanced tracking systems in place, every large cash transaction is now traceable.

Final Word

If you frequently deal in cash, stay alert. Large cash transactions can invite penalties, notices, and legal trouble. Using digital payment modes not only keeps your money safe but also ensures peace of mind.

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