It is not uncommon to hear about income tax raids at homes or offices resulting in cash seizures, penalties, or even arrests. This raises a critical question in the minds of taxpayers and common citizens alike: Is keeping large amounts of cash illegal in India? And if not, what is the legal limit to how much cash you can store at home or at your workplace?
Let’s explore the legal framework, compliance rules, and cash transaction limits specified under Indian tax law.
Is Keeping Cash at Home or Office Illegal?
According to tax experts, there is no explicit limit mentioned in the Income Tax Act or RBI regulations on the amount of cash an individual or business can retain. That means you can keep any amount of cash, provided:
- It is from a known, legal source.
- It is recorded in your books of accounts or financial statements.
- It is declared in your Income Tax Return (ITR), if applicable.
However, simply storing high-value cash without supporting documentation can trigger an investigation from the Income Tax Department under the unexplained income provisions of the Income Tax Act.
Key Legal Provisions for Unexplained Cash
Sections 68 to 69B of the Income Tax Act
These sections empower Assessing Officers (AOs) to investigate and question the taxpayer if any cash or asset is found that:
- Is not recorded in the books of accounts.
- Is inadequately explained or declared.
- Appears suspicious or disproportionate to reported income.
If a taxpayer fails to satisfactorily explain the source, the amount may be classified as unexplained income, and taxed at an effective rate of up to 78%, along with possible penalties.
What If You Run a Business?
If you operate a business, the cash on hand must match the balances reflected in your cash book or accounting software. Any mismatch may attract scrutiny, especially during:
- Tax audits
- GST assessments
- Survey or raid proceedings
Even non-business individuals must maintain documentation for large cash holdings, such as:
- Bank withdrawal slips
- Property sale proceeds
- Gift declarations
- Loan agreements
Cash Transaction Limits: What You Should Know
While holding cash isn’t illegal, there are strict restrictions on certain types of cash transactions, especially in business and high-value purchases.
Key Income Tax Sections Governing Cash Use:
| Section | Provision |
|---|---|
| Section 269ST | Cash transactions over ?2 lakh per person, per day, or per occasion are prohibited. Violation invites a penalty equal to the transaction amount under Section 271DA. |
| Section 269SS | Prohibits accepting cash loans or deposits exceeding ?20,000. |
| Section 269T | Prohibits repayment of such loans/deposits in cash if the amount exceeds ?20,000. |
| Section 40A(3) | Disallows cash expenses over ?10,000 for business expenses. |
| Section 43 | Disregards any cash purchase of assets over ?10,000 from asset valuation. |
RBI & Bank-Related Cash Limits
Although not directly linked to tax raids, bank and post office withdrawal policies can also impact how much cash you may be holding at a time:
Post Office Cash Withdrawal Limits:
- ?25,000 per day
- ?10,000 per transaction
- Only five free transactions per month
Bank ATM Withdrawal Limits:
- Varies by bank and card type
- Ranges from ?10,000 to ?50,000 daily
- Up to ?10 lakh per week from current accounts
Special Caution: Cash for Gifts and Property
If you’re receiving or giving cash gifts or property sale proceeds, you must remember:
- No cash transaction exceeding ?2 lakh is allowed for each gift or property sale deal.
- Violation can attract a 100% penalty under Section 271DA.
It is strongly recommended to use non-cash modes like account transfers, RTGS, NEFT, UPI, or cheques for high-value transactions.
Conclusion
So, how much cash can you legally keep?
There is no maximum limit prescribed under the law. However, you must ensure that:
- The source is legitimate and documented.
- You can justify the cash during an investigation.
- You avoid prohibited cash transactions under Sections 269ST, 269SS, and 269T.
If not accounted for properly, even legal cash may be treated as black money, attracting heavy tax and penalties. Hence, it is best to document everything, avoid cash deals above ?2 lakh, and report all income properly in your ITR.
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