The government is tightening oversight on large cash transactions to curb tax evasion and improve financial transparency. Under the draft Income Tax Rules 2026, individuals and entities making high-value cash deposits or withdrawals in a single financial year will be required to furnish their Permanent Account Number (PAN). While the rule is expected to impact a wide range of taxpayers, certain categories will be exempt. Here’s a clear breakdown of what changes, who must comply, and who gets relief.

What the New Rule Says

As per the draft rules, any cash deposit or cash withdrawal totaling ₹20 lakh or more in a financial year will trigger mandatory PAN reporting. The requirement applies regardless of whether the amount is deposited or withdrawn in one go or through multiple transactions that add up to the threshold during the year.

In addition, PAN will be compulsory while opening a current account or a cash credit account. This step aims to ensure that accounts typically used for business or high-volume cash activity are properly linked to tax identities.

The move is part of a broader effort by the Income Tax Department to track large cash flows and discourage unaccounted money in the system.

Who Will Verify PAN Details?

The responsibility of PAN verification will rest with the institution handling the transaction:

• Banks and cooperative banks governed under banking regulations will verify PAN details for applicable transactions.




• In the case of post office accounts, the verification responsibility will lie with the designated postal authorities, led by the Postmaster General.

If PAN details are not furnished or fail verification, institutions may restrict or refuse such high-value cash transactions.

Why the Government Is Tightening Cash Rules

Large cash transactions have long been viewed as a potential channel for tax evasion and unreported income. By mandating PAN for high-value cash activity, authorities can:

• Track financial behavior more accurately




• Cross-check transactions with income disclosures




• Improve transparency and compliance




• Reduce misuse of cash-based channels

Officials say the rule will strengthen data matching across systems and improve monitoring without affecting routine, low-value transactions.

Who Is Exempt From PAN Requirement?

Despite the strict threshold, the rules clearly carve out specific exemptions. PAN will not be required for cash transactions exceeding ₹20 lakh if the transacting entity falls into one of the following categories:

Central Government or State Governments

Consular offices and diplomatic entities

Non-resident individuals or foreign companies that:

• Conduct transactions through an IFSC banking unit, and




• Do not have any taxable income in India

These exemptions recognize the unique legal and tax status of government bodies and certain international entities operating within regulated financial frameworks.

Practical Examples to Understand the Rule

• Example 1: If an individual deposits ₹30 lakh in cash into their bank account during a financial year, PAN must be provided and verified by the bank.




• Example 2: If a foreign company with no taxable income in India deposits ₹60 lakh into an IFSC banking unit account, PAN will not be required due to the exemption.

These examples highlight that the nature of the entity and taxability in India play a crucial role in determining compliance.

How PAN Certification Will Work

PAN details submitted for qualifying transactions will be certified through systems linked to the tax authorities. Senior officials and automated checks connected to the Government of India tax infrastructure will validate the PAN. Only after verification will the transaction be considered compliant.

This added layer of certification ensures accuracy and reduces the chances of misuse or incorrect reporting.

What Taxpayers Should Do Now

Individuals and businesses that regularly deal in cash should:

• Review their annual cash transaction totals




• Ensure PAN details are updated and accurate




• Avoid structuring transactions to bypass thresholds, as cumulative totals will be tracked




• Consider shifting to digital or banking channels for better compliance

Tax experts advise planning ahead, as non-compliance could lead to transaction restrictions and increased scrutiny.

Bottom Line

The draft Income Tax Rules 2026 mark a significant step toward tighter control over high-value cash transactions. While the ₹20 lakh threshold will bring many transactions under the PAN umbrella, the rules also provide reasonable exemptions for government bodies and certain international entities. For most taxpayers, staying compliant will be straightforward—keep PAN details ready, plan transactions transparently, and avoid last-minute hurdles as the rules come into force.