Cash Withdrawal Limit: While most payments are made digitally today, many people still use cash for household chores, gifts, business payments, and major expenses. Consequently, the question often arises as to what the maximum daily cash withdrawal or cash withdrawal limit is. Many people, due to a lack of information, exceed the prescribed limit, which could lead to tax action or notices from the tax department.
The government and the Income Tax Department closely monitor cash transactions because large cash transactions increase the likelihood of tax evasion. Digital payments record every transaction, while cash transactions are difficult to track. Therefore, the government has established special rules to ensure transparency in transactions.
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What is the daily cash limit?
According to Section 269ST of the Income Tax Act, a person can withdraw or transfer cash up to a maximum of ₹2 lakh in cash in a single day. This limit applies to any type of payment, whether it’s a gift, a business payment, a personal expense, or a loan. Therefore, receiving or giving cash in excess of Rs 2 lakh is considered a direct violation of the rules.
Penalties for Breaking the Rules
If a person receives more than Rs 2 lakh in cash in a single day, this transaction becomes a red flag for the department. Breaking this rule can result in a penalty equal to the amount of cash received under Section 271DA. For example, if someone receives Rs 2.5 lakh in cash, they may be subject to a penalty of Rs 2.5 lakh only. This action applies to the person receiving the cash, not the person giving it.
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What the Transaction Rules Say
Many people think that no rules apply to cash transactions between family or friends, but this is a misconception. The Income Tax Department can also investigate cash transactions between individuals and relatives. If someone gives or receives more than Rs 2 lakh in cash, the department can investigate where the money came from and why it was taken.
It’s important to know the rules
Understanding cash limits is crucial to avoid inadvertently violating them. Sometimes, people withdraw large sums of cash from banks and make payments, only to later receive a tax notice. Digital payments have simplified the system, but it’s crucial to follow these rules where cash is needed.