Expenses › Cash expenses and the ₹10,000 limit

Cash expenses and the ₹10,000-a-day limit

Paying in cash is quick, but the income tax law does not like large cash expenses. Pay one person more than ₹10,000 in cash in a day, and that expense can be taken out of your profit and loss account, so you pay tax on it as if you never spent it.

The rule

If a business pays a person more than ₹10,000 in a single day in cash (or by a bearer cheque), the payment is not allowed as an expense when working out taxable profit. The limit counts all payments to that person on that day together: three cash payments of ₹4,000 to the same supplier on one day is ₹12,000 and breaks the rule.

For payments to transporters for plying, hiring or leasing goods carriages, the limit is ₹35,000 a day.

This was section 40A(3) of the Income-tax Act, 1961, and the same rule continues under the Income-tax Act, 2025, which applies from 1 April 2026.

An example

A shop pays its electrician ₹14,000 in cash for wiring on 12 November. The ₹14,000 is disallowed: the shop's profit is taken as ₹14,000 higher. Had the shop paid by UPI or bank transfer, or paid ₹7,000 on 12 November and ₹7,000 on 13 November against separate work, the expense would be allowed. Splitting one bill over two days just to stay under the limit is risky; paying through the bank is the clean answer.

Exceptions

The income tax rules (Rule 6DD of the old rules) list cases where a larger cash payment is still allowed, for example payments to banks and the government, payments in villages with no bank, and some payments to farmers for their produce. They are narrow; do not assume one applies without asking your accountant.

Keeping cash expenses safe

• Pay above ₹10,000 through the bank: UPI, NEFT, IMPS or an account-payee cheque.
• Write a voucher for every cash payment without a bill (voucher.niveshsahayak.in), signed by the person paid.
• Keep a petty cash book for small daily cash (petty-cash.niveshsahayak.in), topped up by a recorded withdrawal.
• Record the mode in the expense book. "Paid by: Cash" lines are easy to scan at the month end for any that cross the limit.