Cash At Home: No Limit, But Be Ready To Prove the Source

There is no specified limit as to the amount of cash that an individual can keep at home without triggering scrutiny. You may keep as much as you wish, but in the event there is a query or a search and seizure action, you should be able to reply as to the source of the funds.

“However, in view of the proposed provisions that contemplate an effective levy of nearly 84 per cent on unexplained cash, individuals must exercise prudence and ensure that their household cash holdings bear a reasonable nexus to their declared income, customary withdrawals, and financial profile,” says Tushar Kumar, advocate, Supreme Court of India.

If, for example, funds have been drawn from a bank account, then you would have the counterfoil of the cheque and the bank statement.

“If, for instance, one has a shop,  and sales are made in cash, then you may keep the entire amount of cash at home or in the shop until such time as you deposit the amount into your bank account. If you are questioned, you would have to explain the sales that have been made and show the bills,” says Anil Harish, partner, DM Harish & Co. Advocates.

Maintain Proper Documentation 

On should always maintain proper documentation that connects and establishes that the cash is out of previous earnings or savings on which tax has been paid when it was earned. “The withdrawals should prove that they are commensurate with the income you have earned over the years and as declared in your Income Tax Return (ITR). The bank statements should clearly show the amount of withdrawals nearing the amount of cash in hand,” says Ritika Nayyar, partner, Singhania & Co.

In case cash was derived from the sale of property, investments in shares, mutual funds, etc, one must keep the sale agreements, proof of investments, etc. In case of cash gifts received from relatives or on marriage, one must keep details of the amount received, the name of the relatives, etc.

In Case Of Scrutiny, Proof Is Important 

Scrutiny ordinarily arises during income-tax search or survey proceedings, based on suspicious transaction reports, or when the quantum of cash appears disproportionate to the individual’s known resources. In such situations, the justification must be precise, credible, and supported by records that withstand forensic examination.

“If the origin of cash is satisfactorily demonstrated, whether through declared business receipts, identifiable past savings, legitimate gifts, or documented asset disposals, the inquiry stands answered. Conversely, any inability to establish source or linkage invites classification as unexplained money, thereby attracting the stringent fiscal consequences contemplated under the proposed regime,” says Kumar.