Income tax rules in India do not allow cash transactions for any purpose above the limit of Rs 2 lakh. However, recently the income tax department relaxed this rule for payment of hospital bills on account of Covid treatment for the period between April 1 and May 30. In such cases hospitals have been asked to take a copy of the Aadhaar and PAN of the patient and the person giving the money. If the individual paying the bill is other than the patient, then he/she needs to state his/her relationship with the patient.

But for most other transactions the above rule is still applicable. For example, if you are buying gold jewellery worth Rs 3 lakh in a single transaction, then you have to compulsorily make payment through cheque, credit card, debit card or bank transfer.

This rule is applicable even if you are receiving money from any of your relatives. An individual cannot accept more than Rs 2 lakh cash from close relatives in a single day.

Cash transaction limit on business expenditure

Companies, firms are also not allowed to accept or pay cash beyond a limit. If a business owner transacts for more than Rs 10,000 in cash, then that amount can not be claimed as an expenditure. 

For tax-saving instruments

If you are doing any tax-saving investment to claim deduction under Section 80C or any other section like Section 80D 

When doing your tax planning, ensure that you don’t pay for health insurance in cash. The law does not allow the taxpayer to take benefit of Section 80D if he pays the insurance premium in cash. It has to be done mandatorily through the banking channel.

For loans and property 

If someone is taking a loan from a financial institution or even from a friend in cash, then the amount can not exceed Rs 20,000. The same rule applies to repayment of the loan. For loan repayment of Rs 20,000, the person must pay through the banking channel.

The maximum cash permitted in a property transaction, too, is Rs 20,000. Even if a seller is taking an advance, the limit is the same.

Worth mentioning here is that in most cases, the onus is on the receiver to not accept cash. Typically, the income tax department levies the penalty on the receiver, equivalent to the amount received in cash. It’s not allowed even if you receive the money in cash and immediately deposit it in the bank account.

However, some transactions are out of this purview. If you run a business and want to deposit over Rs 2 lakh in the bank account which you have received through multiple transactions by selling your goods and services, then it is allowed.