Starting next Magh, the general public will not be allowed to make cash transactions of five or more rupees.

In order to help prevent money laundering, discourage cash transactions, and encourage digital payment transactions, the government has decided to prohibit cash transactions of five hundred thousand rupees or more from January 1. 

Although the decision was made by the Council of Ministers two weeks ago, it will be implemented from January 1. ‘From January 1, 2082, a transaction limit will be set so that when buying or selling any service or goods worth five hundred thousand rupees or more at a time, it must be done through financial institutions or banking instruments,’ the decision of the Council of Ministers states. 

Currently, there is a provision that the general public is not allowed to make cash transactions of one million rupees or more. The government has decided to reduce that limit to five hundred thousand. Since the government’s decision has not been published in the Gazette, the Rastra Bank has not issued instructions for its implementation. The new arrangement will come into effect after the government’s decision is published in the Gazette and the Rastra Bank issues instructions based on it.

There was no limit on cash transactions until 1 Shrawan 2074. The general public could conduct any transaction in cash. On 10 Chait 2073, the government issued a notification in the Gazette, setting the limit on cash transactions at 1 million rupees for the first time. That provision came into effect from 1 Shrawan 2074. ‘From 1 Shrawan 2074, any person, firm, company or organization that purchases, sells or makes other transactions of any service or goods worth 1 million rupees or more at a time must do so through a financial institution or banking instrument,’ the notification published in the Gazette on 1 Chait 2073 said. After about a decade, the government reduced that limit to 500,000.

However, the general public is allowed to withdraw deposits, save or exchange amounts exceeding the limit from financial institutions, and make transactions to repay loans taken from financial institutions and their principal and interest. It is said that if the content and reason of the application made by a depositor or saver for cash payment are found to be reasonable, the financial institution in which such depositor or saver has an account may also make cash payments exceeding the specified limit to the depositor or saver.

Mahesh Acharya, Chief of the Financial Sector Management and Institutions Coordination Division of the Ministry of Finance, confirmed that although the Cabinet meeting decided to reduce the cash transaction limit from 1 million to 5 million, it has not been implemented yet. ‘The reduction in the cash transaction limit will be published in the Gazette within a week, after which it will be implemented,’ he said, ‘This arrangement is only for payments made during the purchase, sale of goods and services and other transactions.’

 According to the source, due to minor technical errors, the directive for implementation could not be issued even though the decision was made by the Cabinet. The Cabinet meeting on 15 Mangshar reduced the cash transaction limit from 1 million to 5 million. However, at that time, no decision was taken to revoke the previous decision (directive) prohibiting cash transactions of Rs 1 million or more. That is why the current cabinet meeting will decide to revoke the limit of transactions up to Rs 1 million and set it at Rs 5 million, according to the source. 

The government has been given the authority to set limits on cash transactions as per Section 44 (c) of the Prevention of Money Laundering Act, 2064. Sub-section (1) of Section 44 (c) empowers the government to set limits on cash transactions for certain goods, services or other transactions by publishing a notification in the Gazette. By exercising this authority, rules can be made to require transactions above a certain amount to be made through banks and financial institutions instead of cash. As per the same provision, the government has currently set a limit of Rs 5 million or more for cash transactions. 

The government has set the limit on cash transactions as per the provisions of the Prevention of Money Laundering Act. Therefore, action will also be taken as per the provisions of the same act. Section 30 of the Act contains provisions on punishment. Sub-section 9 of Section 30 provides that if this rule is violated, the amount will be confiscated, a fine equivalent to the amount and a fine of up to 1 million rupees will be imposed. ‘If anyone violates this Act or the rules made under this Act, the amount will be confiscated and a fine equivalent to the amount will be imposed, and if the amount is not disclosed, a fine of up to 1 million rupees will be imposed,’ states Sub-section 9 of the Act.

The government claims that the decision to reduce the maximum limit of cash transactions from 1 million rupees to 5 million will have a direct impact on businessmen, consumers and the overall economy. The government has multifaceted economic, financial and regulatory objectives behind tightening cash transactions. The first and foremost reason is to control black money. Large amounts of cash transactions make it easier to hide illegal income, launder money and conduct illegal activities. It is expected that reducing the cash limit will discourage such activities. 

Second, the government’s main objective is to prevent tax evasion. Since cash transactions often remain outside the scope of audit, there is a high possibility of evasion of value-added tax (VAT), income tax and other taxes. It is believed that after the limit on cash transactions is reduced, payments made through the banking system will increase and transactions will come under the tax net.