Cash is still king at many Indian counters, but the Income-tax Act puts hard limits on it, and the penalty is equal to the full amount. Since 1 April 2026 the rules sit in new section numbers under the Income-tax Act, 2025. The limits themselves did not change.
Key takeaway: Do not receive ₹2 lakh or more in cash from one person in a day, for one deal or one event. Do not take or repay a loan or advance of ₹20,000 or more in cash. Business expenses paid in cash above ₹10,000 per person per day are not deductible.
Proof matrix: old vs new section numbers
| Rule | Limit | 1961 Act | 2025 Act | Consequence |
|---|---|---|---|---|
| Receiving cash | ₹2,00,000 or more per person per day / transaction / event | 269ST | 186 | Penalty = 100% of amount (Sec 451) |
| Taking a cash loan, deposit or property advance | ₹20,000 or more | 269SS | 185 | Penalty = 100% (Sec 450) |
| Repaying a loan or deposit in cash | ₹20,000 or more | 269T | 188 | Penalty = 100% (Sec 453) |
| Paying a business expense in cash | above ₹10,000 per person per day | 40A(3) | 36(4) | Expense disallowed |
| Transporters (goods carriage hire) | above ₹35,000 per day | 40A(3) proviso | 36(6) | Expense disallowed |
| Digital payment facility | Turnover above ₹50 crore | 269SU | 187 | ₹5,000 per day of failure (Sec 452) |
The Act lists the safe modes as an account payee cheque, account payee bank draft, electronic clearing through a bank account, or another prescribed electronic mode. UPI, cards, net banking, IMPS, NEFT and RTGS have been prescribed for this purpose under the income-tax rules.
The ₹2 lakh rule, explained with examples
The ₹2 lakh limit (Sec 186) is checked three ways, and crossing any one of them is a breach:
| Situation | Allowed? |
|---|---|
| One customer pays ₹1,50,000 cash on Monday and ₹1,50,000 cash on Wednesday for two separate orders | Yes — different days, different deals |
| One customer pays ₹2,10,000 cash for one sofa set, split into two bills the same day | No — same person, same day |
| A wedding caterer receives ₹80,000 cash three times for one wedding | No — one event, ₹2,40,000 total |
| A jeweller receives ₹1,99,000 cash plus ₹1,00,000 by UPI | Yes — cash part is below ₹2 lakh |
The penalty falls on the person receiving the cash, not the payer. A shop that accepts ₹2,50,000 in cash can face a penalty of ₹2,50,000. Penalty can be avoided only if you prove a reasonable cause.
The ₹10,000 expense rule
If you pay a supplier, labourer or landlord more than ₹10,000 in cash on one day, that whole payment is not allowed as a business expense (Sec 36(4)). Example: you pay ₹14,000 cash to a carpenter. Your profit for tax goes up by ₹14,000 — at 30% that is about ₹4,200 of extra tax. Paying the same by UPI costs nothing.
Cash also decides your audit and presumptive limits
- Presumptive tax (Sec 58, old 44AD): the turnover limit is ₹2 crore, raised to ₹3 crore if cash receipts are within 5% of turnover. Deemed profit is 6% on digital receipts and 8% on the rest.
- Tax audit (Sec 63, old 44AB): required above ₹1 crore turnover, raised to ₹10 crore if both cash receipts and cash payments are within 5%.
Playbook: keep cash safe
- Put a ₹1,99,999 cash cap at the counter for any one customer, one day, one order.
- Never take or repay loans from friends, relatives or suppliers in cash if it is ₹20,000 or more.
- Pay expenses over ₹10,000 by UPI or bank transfer.
- Record every receipt with its mode (cash or bank) the same day.
- At day end, match the cash drawer with your cash book.
Record cash and bank separately in DAM
Steps follow DAM's in-app search (Receive Money, Pay Money, Day Book).
- Open Search and type Receive Money. Enter the amount and use Add Payment Mode to choose Cash in Hand or your Bank Account.
- For payments out, search Pay Money and pick the mode the same way.
- Search Day Book to review all dated transactions and catch any large cash entry.
Keep cash and bank apart, every day
Record each receipt and payment by mode so large cash entries never slip through.
Frequently Asked Questions
What is the cash limit per day in 2026?
You cannot receive ₹2 lakh or more in cash from one person in a day, for one transaction or for one event (Sec 186, Income-tax Act 2025).
What is Section 269ST called now?
Section 186 of the Income-tax Act, 2025, from tax year 2026-27. The penalty section is 451.
Who pays the penalty — buyer or seller?
The person who receives the cash.
Is UPI counted as cash?
No. UPI is a prescribed electronic mode and is safe for these limits.
Can I pay salary in cash above ₹10,000?
The ₹10,000 per-day disallowance applies to business expenses, including wages, unless a prescribed exception applies. Pay by bank or UPI to be safe.
Sources
Content checked on 23 October 2026. Income-tax Act, 2025 — Sections 36, 185, 186, 188, 450, 451, 453 · Income Tax Department.
Disclaimer: This guide is for educational purposes only and does not constitute formal tax, legal or financial advice. Verify with a registered Chartered Accountant (CA) before acting.