New Tax Rules Target Cash Transactions
India's 2026 income tax overhaul introduces a mandatory PAN requirement for cash withdrawals exceeding ₹10 lakh annually, a move that will increase scrutiny on cash-heavy vendors. A recent analysis explains the government is also shifting to a "trust-based" compliance regime, which could encourage more small businesses to formalize their sales and join digital platforms.
- The new PAN requirement for cash transactions is part of the Draft Income-Tax Rules, 2026, which are set to take effect from April 1, 2026, alongside the new Income-Tax Act, 2025. The Central Board of Direct Taxes (CBDT) is expected to notify the final rules by early March 2026 after stakeholder consultations. - This rule replaces the previous threshold which required a PAN for any single-day cash deposit exceeding ₹50,000. The change is intended to reduce the compliance burden for smaller, routine transactions while increasing scrutiny on large-value cash movements. - In addition to withdrawals, the aggregate ₹10 lakh limit also applies to cash *deposits* across one or more bank accounts in a financial year. - For individuals who have not filed income tax returns for the previous three assessment years, a 2% Tax Deducted at Source (TDS) applies to cash withdrawals exceeding ₹20 lakh, and this rate increases to 5% for withdrawals over ₹1 crore. For regular taxpayers, a 2% TDS is applicable only on cash withdrawals exceeding ₹1 crore in a financial year. - The "trust-based" regime aims to create a class of 'trusted entities' in both direct and indirect taxation, who may receive preferential treatment and undergo entity-level audits rather than transactional scrutiny, thereby reducing compliance costs. - Other significant changes in the draft rules include raising the PAN reporting threshold for immovable property transactions from ₹10 lakh to ₹20 lakh and for hotel or restaurant bills from ₹50,000 to ₹1 lakh. - The government's stated goal for these measures, particularly Section 194N which governs TDS on cash withdrawals, is to discourage large cash transactions, curb the circulation of black money, and promote digital payments. - The penalty for receiving ₹2 lakh or more in cash from a single person in a day for a single transaction is a penalty equal to the entire amount received, as per Section 269ST of the Income Tax Act.
