Income Tax Act 2025: New Cash Transaction Limits to Curb Tax Evasion
Quick Look
- The Income Tax Act 2025 introduces new limits on cash transactions to combat tax evasion.
- Key changes include a Rs 2 lakh daily cash receipt limit from one person, cashless transactions for loans/deposits over Rs 20,000, and limits on business expenses and donations.
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Why It Matters
The Income Tax Act 2025 has introduced new rules to curb tax evasion by limiting cash transactions. These rules affect individuals and businesses across various financial activities.
The Income Tax Act 2025 has limits on several types of cash transactions to promote transparency and curb tax evasion. From receiving cash and accepting or repaying loans to making business payments, donations, and property transactions, exceeding these prescribed limits can attract penalties or may lead to tax scrutiny. Here are some of the key cash transaction limits under the Income Tax Act 2025 that every taxpayer should be aware of.
Chartered accountant, Abhishek Soni, CEO & co-founder, Tax2win, discusses 8 key income tax limits every taxpayer should know to avoid penalties.
1. Cash receipt limit – Rs 2 lakh
You cannot receive Rs 2 lakh or more in cash from one person in a single day, for one transaction, or for one event or occasion. If you receive more than this limit in cash, you may have to pay a penalty equal to the amount received.
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2. Cash loan or deposit limit – Rs 20,000
You cannot accept a loan, deposit, or certain property advances of Rs 20,000 or more in cash. Such transactions should be made through a bank account to avoid penalties.
3. Cash repayment limit – Rs 20,000
If you have taken a loan or deposit, you cannot repay Rs 20,000 or more in cash. The repayment should be made through a bank transfer or a cheque. Otherwise, a penalty may apply.
4. Business expense in cash – Rs 10,000
A business cannot claim a tax deduction for cash payments above Rs 10,000 to a person in a single day. For transport businesses, this limit is Rs 35,000.
5. Cash donation limit – Rs 2,000
Cash donations of more than Rs 2,000 are not eligible for a tax deduction under Section 80G. To claim the deduction, make the donation through banking channels.
6. Cash withdrawal from bank
There is no limit on withdrawing cash from your own bank account. However, large cash withdrawals may be reported to the Income Tax Department, and TDS u/s 194N may apply if withdrawals exceed the prescribed limit.
7. Property transactions in cash
Large cash payments in property transactions are discouraged. Paying or accepting large amounts in cash while buying or selling property may attract tax scrutiny and penalties. (Any cash advance/payment of Rs 20,000+ for property already falls under Section 269SS, not just ‘large’ cash amounts).
8. Splitting cash transactions
You cannot avoid cash transaction rules by splitting one large payment into several smaller cash payments. If all the payments relate to the same transaction or event, they may still be treated as a single transaction and attract penalties.
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Open Questions
- Specific penalties for each violation.
- Enforcement mechanisms for these limits.
