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Cash book › Cash limits in income tax
Cash limits: how much cash a business may take, pay or borrow
Income-tax law sets a few cash limits that apply to almost every shop. Breaking them does not need a tax inspector to spot it: they show up in your own cash book. These limits were in the Income-tax Act, 1961 and continue in the Income-tax Act, 2025, which applies from 1 April 2026.
The limits
| What | Limit | What happens if crossed |
|---|---|---|
| Cash received from one person in a day, or for one transaction, or for one event | Less than ₹2,00,000 | Penalty equal to the amount received (old sections 269ST and 271DA) |
| Cash paid to one person in a day for a business expense | Up to ₹10,000 (₹35,000 to transporters) | The expense is not allowed when working out taxable profit (old section 40A(3)) |
| Loans or deposits taken or repaid in cash | Less than ₹20,000 | Penalty equal to the amount (old sections 269SS and 269T) |
The ₹2 lakh limit counts a day, a single bill and a single occasion separately: a customer paying a ₹2,50,000 bill as ₹1,25,000 cash on two days still breaks it, because it is one transaction.
Cash and the presumptive scheme
Many small shops pay tax on a presumed profit instead of keeping full accounts (section 44AD of the 1961 Act, carried into the 2025 Act). The presumed profit is 6% of turnover received by bank, UPI or cheque and 8% of turnover received in cash. The turnover limit for the scheme is ₹2 crore, raised to ₹3 crore when cash receipts are no more than 5% of turnover. So every sale you take by UPI instead of cash can lower the presumed profit, and your bank book is the proof.
An example
A shop with ₹80 lakh turnover takes ₹50 lakh by UPI and ₹30 lakh in cash. Presumed profit: 6% × 50 lakh + 8% × 30 lakh = 3 lakh + 2.4 lakh = ₹5.4 lakh. If it took everything by UPI, it would be 6% × 80 lakh = ₹4.8 lakh.
Using the cash book to stay inside the limits
- Check the In column of the cash book for any single customer close to ₹2 lakh, and ask for UPI or bank transfer for large bills.
- Check the Out column for any payment over ₹10,000 to one person in a day; pay those by bank instead.
- Never take or repay a loan in cash. Record loans through the bank so the bank book shows them.
- Your accountant decides how these rules apply to your case; the cash book gives them the facts.