How Much Cash Can You Legally Keep at Home, Income Tax Is Watching You!

Do You Store Cash at Home? Be Careful! Know These Income Tax Rules First

In India, people still prefer to keep some amount of cash at home. It gives a sense of safety, convenience, and immediate access during emergencies. But do you know How Much Cash Can You Legally Keep at Home as per Income Tax rules? Or what can happen if the Income Tax Department questions you?

Let’s understand everything in simple language — from the rules of keeping cash at home, cash transaction limits, TDS on withdrawals, and penalties you might face, to how to stay safe as a taxpayer. This article will help you clear all doubts and stay tax-compliant.

Is It Illegal to Keep Cash at Home?

You are legally allowed to keep cash at home, and the Income Tax Act doesn’t set a maximum limit on how much. However, that doesn’t mean you can store crores of rupees in cash without any questions. The Income Tax Department allows you to keep cash, but you must have a valid source of income for that cash.

If you’re unable to explain where the cash came from or if it’s not reflected in your Income Tax Return (ITR), you may face serious consequences — including penalties, seizure of cash, and even arrest in rare cases.

Key Points to Remember:

✅ No legal limit on cash kept at home.

✅ You must disclose the source of the cash.

✅ Cash should be reflected in your ITR.

✅ TDS rules apply on large cash withdrawals.

✅ PAN is mandatory for cash transactions above ₹50,000.

✅ Property, salary, and business transactions have strict cash limits.

Why Is the Income Tax Department Monitoring Cash?

The Government of India and the Income Tax Department keep a close eye on high-value cash transactions to prevent tax evasion, black money, and money laundering. Cash dealings are hard to trace, and that’s why suspicious or unaccounted cash can easily catch the attention of income tax authorities.

So, even if you’re not doing anything wrong, it’s better to follow the rules and keep your cash properly recorded and reported.

What Happens If Income Tax Officials Raid Your House?

If the Income Tax Department conducts a raid or survey at your house and finds large amounts of cash, you will be asked to show proof of where that cash came from.

You will have to:

• Show the source of cash (salary, business profit, sale of asset, etc.)
• Provide bank statements, receipts, or bills as evidence.
• Mention that amount in your Income Tax Return (ITR).

If you fail to prove the source:

• Cash can be seized by the Income Tax Department.
• You may have to pay a penalty of up to 137% of the unexplained amount.
• In serious cases, you may even face legal action or arrest.

How Much Cash Can You Legally Keep at Home, As Per Income Tax?

There is no upper limit for keeping cash at home under the Income Tax Act. You can keep ₹1 lakh, ₹5 lakh, or even ₹50 lakh, as long as it is legally earned, properly recorded, and declared in your ITR.

What matters is that the source should be genuine, and you must be able to explain how and when the money was received.

Can You Show Cash in ITR?

Yes, you can and should mention cash on hand in your ITR (Income Tax Return) if you’re holding large cash. Especially for businesses and professionals, showing cash-in-hand under “Balance Sheet” or “Profit & Loss account” is a must.

Even salaried individuals who are holding significant cash (more than ₹2 lakh) should show it as part of personal assets, if asked. This ensures transparency and saves you from future scrutiny.

Is PAN Mandatory for Cash Transactions?

As per CBDT (Central Board of Direct Taxes) guidelines, PAN card is mandatory if you:

• Deposit or withdraw more than ₹50,000 in cash at once.
• Open a bank account.
• Buy or sell property, mutual funds, or jewelry above limits.
• File your ITR.

Banks may also ask for PAN if your total cash deposits cross ₹10 lakh in a financial year.

TDS Rules on Cash Withdrawal from Bank

The Government has also introduced TDS (Tax Deducted at Source) on high cash withdrawals to discourage cash-based economy.

As per rules:

If you have not filed ITR for the last 3 years, and you withdraw:

• More than ₹20 lakh in a financial year – TDS of 2% is applicable.
• More than ₹1 crore in a financial year – TDS of 5% is applicable.

But if you regularly file ITR, you can withdraw up to ₹1 crore in cash without TDS. Beyond ₹1 crore, TDS of 2% will be deducted. So the best way to avoid this is to file your ITR every year on time.

Other Important Cash Limits Under Income Tax Rules

Here are a few important limits you should be aware of:

What is the cash limit for property purchase/sale?

As per Section 269SS and 269T of the Income Tax Act:

• You cannot pay or receive ₹20,000 or more in cash while buying/selling property.
• All transactions must be through bank transfer, cheque, DD, or electronic modes.

If this rule is violated, both buyer and seller can be penalised.

How much cash can you deposit into a savings account?

• You can deposit up to ₹10 lakh in cash in a savings account in a financial year.
• If you deposit more, the bank will report it to the Income Tax Department.
• This can trigger scrutiny, so be sure to have valid sources of cash.

What is the cash payment limit in business?

If you run a business, keep in mind:

• Expenses above ₹10,000 paid in cash are not allowed as deductions under Section 40A(3).
• All business-related payments above this amount must be made via banking modes.

How much cash salary can be paid?

As per rules:

• Salary paid in cash should not exceed ₹10,000 per person per month.
• It is important to maintain salary registers and receipts to prove the payment.

How to Stay Safe and Tax Compliant?

If you want to keep your savings safe and avoid unwanted attention from the Income Tax Department, it’s important to follow some basic tax rules. Here are a few practical steps you should take:

1. Keep Proper Proof of Your Income

Whether you earn from a job, business, or freelancing, always keep documents like salary slips, bills, payment receipts, or contracts. These help you explain where your money came from in case of a tax enquiry.

2. File Your Income Tax Return (ITR) Every Year

Even if your income is below the taxable limit, it’s a good habit to file your ITR. It shows that your earnings are legal and declared. It also builds a clean financial history.

3. Avoid Using Cash for Large Transactions

Try not to use cash for big payments like buying property, jewellery, or business deals. Instead, use digital transfers, bank cheques, or UPI. This keeps your money trail transparent and safe.

4. Maintain a Record of Income and Expenses

If you’re self-employed or run a business, maintain personal books of accounts. Track your daily income, expenses, and savings. This helps justify your cash balance and gives you control over your finances.

5. Do Not Try to Bypass Limits by Splitting Cash

Depositing money in small amounts just to avoid bank reporting limits is risky. The tax department tracks patterns, and such tricks can attract scrutiny or penalties.

6. Declare Cash-in-Hand in Your ITR

If you keep a large amount of cash, especially over ₹2 lakh, make sure you mention it in your ITR. This shows transparency and reduces the chances of facing problems later.

7. Respond Promptly to Tax Notices or Queries

Never ignore any notice or email from the Income Tax Department. Reply with proper documents and explanations. A quick response can prevent bigger issues like fines or legal action.

Bonus Tips for Staying Compliant

Here are a few extra tips that can help you stay even more protected:

• Link your PAN and Aadhaar to avoid discrepancies.
• Avoid dealing in cash beyond legal limits in property, gifts, or loans.
• Don’t take or give loans above ₹20,000 in cash — it can attract heavy penalties.
• Use accounting apps or hire an accountant to stay updated with records.
• Declare all your income, even if it comes from side hustles, gifts, or freelancing.
• Do regular financial reviews of your income and expenses.

What If You Receive Cash Gift or Inheritance?

If you receive cash as a gift, it is tax-free up to ₹50,000 in a financial year. However, if the gift is from a close relative, there is no limit.

If you receive inheritance, it is also not taxable, but you should keep documents like will copy, death certificate, legal heir proof, etc.

FAQs – Income Tax & Cash Rules in 2025

Q1. How much cash can I keep at home in India?

There’s no legal limit on how much cash you can keep at home. However, you must be able to prove the source of the cash if questioned. If the cash is not explained properly in your ITR or supported with documents, you may face penalties or seizure.

Q2. Is cash withdrawal taxable in 2025?

Cash withdrawal itself is not taxable. But if you withdraw over ₹20 lakh in a financial year and haven’t filed ITR for the last 3 years, TDS will be deducted at 2%. If it crosses ₹1 crore, TDS will be 5%.

Q3. Can I receive ₹5 lakh in cash from my friend?

No. Cash gifts above ₹50,000 from non-relatives like friends are taxable. You must declare it as income in your ITR and pay tax on the full amount. Gifts from close relatives are not taxable.

Q4. What happens if I deposit ₹15 lakh in my savings account?

The bank will report it to the Income Tax Department under high-value transactions. Be ready to explain the source of funds. If the money is unaccounted for, you may get a tax notice or face penalties.

Q5. Can I pay ₹5 lakh in cash to buy land or property?

No. Any payment above ₹20,000 for buying property must not be in cash. You should use cheque, bank transfer, or digital mode. Violating this rule may attract a penalty equal to the cash amount paid. 

Final Thoughts

Keeping cash at home is not a crime — but you must be ready to prove that it is legal. The Income Tax Department has various tools to track cash transactions and can even match your cash deposits with your ITR and bank statements.

So, the best practice is to:

• Earn legally,
• Record honestly,
• Disclose properly, and
• Pay taxes on time.

If you follow the rules, you will never face trouble — even if you keep lakhs of rupees in cash at home. If you found this article helpful, don’t forget to bookmark Fininformatory for more such valuable updates and finance tips. Stay informed. Stay safe.

Read also: Why Financial Planning is Important and Investment Options to Consider