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Cash payment limits under income tax
Paying in cash is still common, but the income tax law limits it. A payment voucher for a large cash amount can cost you more in tax than the payment itself if you do not know these rules.
The ₹10,000 a day rule for expenses
If a business pays more than ₹10,000 in cash to one person in one day for an expense, that expense is not allowed as a deduction when working out business profit. You pay tax on it as if you never spent it. The limit is per person per day, so splitting one bill into three vouchers of ₹4,000 on the same day does not help: the total to that person that day is what counts.
For payments to transporters for plying, hiring or leasing goods carriages, the limit is ₹35,000 a day.
The rule also catches an expense booked earlier and paid in cash later: if the later cash payment to that person crosses the limit in a day, the amount is added back to income in the year of payment.
A worked example
A shop pays its painter ₹18,000 in cash on 4 Nov 2026 for painting the showroom. The cash payment is over ₹10,000 in one day, so the ₹18,000 is not allowed as an expense. If the shop is taxed at 30%, that is about ₹5,400 of extra tax, plus cess. Paying the same ₹18,000 by UPI or bank transfer avoids the problem completely.
Exceptions
The rules list some cases where cash above the limit is still allowed, for example payments to banks and the government, payments in villages without a bank, and certain payments to farmers for their produce. They are narrow and have conditions, so check with your accountant before relying on one.
Other cash limits to know
| What | Limit |
|---|---|
| Business expense paid in cash to one person in a day | Above ₹10,000 not allowed as expense |
| Payment to a transporter for goods carriage, per day | Above ₹35,000 not allowed as expense |
| Cash received from one person in a day, for one transaction or one event | ₹2,00,000 or more not allowed; penalty can equal the amount |
| Loans or deposits taken or repaid in cash | ₹20,000 or more not allowed |
| Spending on a new asset (machine, vehicle) paid in cash | Above ₹10,000 in a day is not counted for depreciation |
The revenue stamp
Under the Indian Stamp Act, a receipt for more than ₹5,000 needs a ₹1 revenue stamp. When you pay cash above ₹5,000 and the receiver signs your voucher as proof, ask them to sign across a revenue stamp. The maker shows a stamp box on the voucher automatically when the mode is Cash and the total is over ₹5,000.
Good habits
- Pay anything above ₹10,000 by UPI, cheque or bank transfer, and write the reference number on the voucher.
- Do not pay the same person twice in cash on the same day to stay under the limit; it is the daily total that counts.
- Keep salary payments in the bank too. It helps with PF, ESI and a clean record.
- Keep small cash spending in a petty cash book so the total is always visible.
Next: approving and filing vouchers.