Think Before You Pay 5 Cash Transactions That Could Get You in Trouble

Cash might seem simple and private, but using it wrongly can land you in legal trouble. Many countries now monitor large or suspicious transactions, and India is no exception. Here are five types of cash payments that could attract tax notices or penalties.

Paying Over ₹2 Lakh in Cash Without PAN Can Get You Noticed

If you make any cash payment over ₹2 lakh without quoting your PAN (Permanent Account Number), you could face legal action. Whether you’re buying gold, electronics, or paying for a service — the law is clear. This rule applies even if you’re splitting the bill across days or through family members.

Tip: Always use digital payment or cheque for large amounts and mention your PAN.

Depositing ₹10 Lakh or More in a Savings Account Is Monitored

Many people assume depositing money in your own account is harmless. However, if you deposit more than ₹10 lakh in a financial year in cash to your savings account, the bank must report it to the Income Tax Department.

Your cash deposits should match your income sources. Frequent large deposits without proper explanation can trigger an income tax notice.

Tip: Avoid cash deposits unless they’re clearly accounted for and supported by income proofs.

Buying Property with Cash Above ₹30 Lakh Can Lead to Legal Action

Property transactions involving large cash amounts are a big red flag. If you make a cash payment of ₹30 lakh or more while buying property, the Registrar Office will report the deal.

The tax department closely watches such transactions under Section 285BA of the Income Tax Act. If your source of funds is unclear, you may face a tax audit or penalty.

Tip: Use bank transfers or cheques for property deals and always report the transaction properly.

Making Cash Donations Above ₹2,000 Is Not Allowed for Tax Deduction

You may think donating in cash is noble — and it is. But if your cash donation is over ₹2,000, it will not be eligible for a Section 80G deduction.

The government introduced this rule to stop the flow of black money disguised as donations.

Tip: Donate through digital modes like UPI, net banking, or cheque to claim tax benefits.

Cash Payment of Salary or Business Expenses Over ₹10,000 May Be Disallowed

If you’re a business owner or run a startup, beware. If you pay more than ₹10,000 in cash per day to any employee or vendor, the Income Tax Department may disallow the expense.

This means you won’t be able to claim it as a business expense while filing returns. Repeated violations can lead to scrutiny and penalties.

Tip: Use direct bank transfers or pay via account payee cheques to avoid issues.

Why You Should Stick to Digital Payments

Governments globally are pushing for digital payments for transparency and tracking. Here’s why avoiding cash is smart:

• Reduces chances of tax scrutiny
  
• Ensures legal proof of transactions
  
• Eases accounting and audits
  
• Qualifies for deductions and benefits
  

Consequences of Breaking Cash Transaction Rules

Breaking these rules is not just risky — it can be expensive. Here are some possible consequences:

• Penalty up to 100% of the transaction value
  
• Income tax notices or reassessments
  
• Disallowance of deductions
  
• Legal action or prosecution in extreme cases
  

Final Words

Cash is convenient, but today’s tax laws don’t leave room for loopholes. Always record your transactions, use PAN or Aadhaar, and opt for traceable payment methods. Stay informed, and you’ll stay out of trouble.

Ritik Bhaskar

I am a digital marketing executive as well as content writer in the income tax and credit cards category. My goal is to provide simple, interesting and reliable information to readers through my articles so that they always stay updated with the world of income tax and credit cards.