Income Tax Alert: Avoid Withdrawing or Transacting Over ₹2 Lakh in Cash in a Day — You Could Receive a Tax Notice

Violation of Cash Transaction Rules Can Lead to I-T Department Action, Heavy Penalties, and Notices

NEW DELHI — In an era where digital payments dominate, many individuals still rely heavily on cash transactions for day-to-day needs. However, the Income Tax Department has strict regulations governing large cash movements, and failure to comply can result in notices, scrutiny, and penalties.

If you’re in the habit of withdrawing or accepting large sums in cash, you must know the legal limits under the Income Tax Act to avoid legal trouble.

What Are the Cash Transaction Rules?

Under Section 269ST of the Income Tax Act, you are not allowed to receive ₹2 lakh or more in cash from:

• A single person in a single day
• Multiple transactions from a single person on the same occasion
• One event or occasion of a transaction exceeding ₹2 lakh in cash

Violation of this section can result in a penalty equal to the amount transacted, as per Section 271DA.

₹5 Lakh Cash Withdrawal: Special Cases Trigger IT Scrutiny

If you withdraw ₹5 lakh or more in a single day, especially from sources other than banks or post offices, the Income Tax Department may issue a notice.

• If you’re unable to justify the source of income, you could face:
  • Income tax investigation
  • Hefty financial penalties
  • Further audits

Note: This ₹5 lakh rule does not apply to withdrawals from bank accounts or post offices but applies to large cash payments elsewhere — especially in real estate, gold purchases, or business dealings.

Digital Transactions Are the Safer Route

To ensure compliance and avoid unexpected tax notices:

• Prefer NEFT, RTGS, IMPS, UPI, or cheques for large payments
• Avoid accepting or giving more than ₹2 lakh in cash to a single person on a single day
• Keep detailed records of income sources and transactions
• File your ITR accurately and on time to prevent mismatches with banking activity

Why the I-T Department Is Watching Closely

With increased digitization of the financial ecosystem, the Income Tax Department is now integrated with:

• Banking systems
• PAN-linked cash withdrawal monitoring
• Real-time transaction tracking

These integrations mean that even offline cash deals can come under scrutiny, especially if reported by financial institutions or if flagged through data analytics.

Final Word: Transparency Is Your Best Defense

In today’s cash-sensitive tax regime, sticking to digital payment methods and staying within prescribed limits is not just a best practice—it’s a necessity.

If you’re planning a high-value transaction, ensure it is routed through legal banking channels to maintain transparency and avoid penalties.