How much rent can you pay in cash?

When renting a house, a tenant is bound by the rental agreement rules and is responsible for paying a monthly rent to the landlord. Before digital payments such as bank transfers and UPI were introduced, people made rent payments in cash. Even today, many rental transactions involve cash payments. It could be for convenience, but there is a risk that the landlord will not report the rental income. In India, rent payments also come with tax benefits, where a tenant can claim House Rent Allowance (HRA), but if the rent is paid in cash and landlords do not issue a receipt, tenants cannot claim the HRA benefit.

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So, before paying rent in cash, tenants should check the risks and legal implications. In this guide, we discuss how much rent a tenant can pay in cash while being eligible for the tax benefits and avoiding any legal risks.

Why are cash rent payments still popular, and what are the risks?

Cash payment for rent may be convenient for tenants and landlords who do not have access to digital facilities. This is mostly seen in smaller towns and local rental markets. Cash transactions are much faster than some digital payments, which take time to process. Moreover, many landlords insist on cash payments to avoid reporting their rental income to the income tax department, to evade tax. However, this can be a risk for both landlords and tenants. The tenants cannot claim their HRA benefit without support documentation of rent payments.

In cash payments of monthly rent, it is likely that the tenant does not get any payment proof. So, in case of a dispute with the landlord, there is no document to support and no transaction history if receipts are not issued. The most common dispute arises during security deposit settlement as tenants could face challenges in establishing their payment history.

Is it legally allowed to pay rent in cash in India?

In India, tenants are allowed to pay house rent in cash, subject to the rental agreement signed between the landlord and tenant. In most rental agreements, landlords mention the rent payment methods, such as cash, cheque, bank transfer or online payment. The Model Tenancy Act in India govern landlord-tenant relationships and lays down rules for rental transactions. As per laws, cash payments are allowed, provided the landlord issues a signed receipt. This receipt is a proof of rent payment, which lets tenants claim their HRA benefits. If the landlord refuses to give a receipt, the tenant can take legal action and approach the relevant rent authorities or consumer court.

How much rent can you pay in cash?

There is no specific provision in the rental laws that limits the amount of rent payment in cash. However, there are laws governing cash transactions in general. Under Section 269ST of the Income Tax Act, 1961, a person is not allowed to receive cash of Rs 2 lakh or more in a single day, from a single person, in a single transaction or occasion. However, some entities, such as the government, banks, etc., are exempted from this rule.

Additionally, there are income tax rules on rent payments. As per Section 194-IB, if the rent exceeds Rs 50,000 per month annually, tenants should deduct TDS at 2% for individuals or HUFs. If the rent payer is an entity, the TDS rate is 6%. However, if the landlord is a non-resident Indian (NRI), the TDS rate is 30% as per Section 195. For the TDS process, the landlord must provide PAN; otherwise, the TDS deduction would be 20% under Section 206AA. Therefore, digital rent payment becomes necessary in such cases instead of cash transactions.

Generally, if the rent is within the allowed limit, tenants and landlords can continue cash transactions for rent payment, provided the landlord issues a properly signed receipt. The receipt is proof that the landlord has received the monthly rent from the tenant, and it should contain the following information:

Name of the landlord and the tenant
Address of the rental property
The month for which the rent is paid
Payment date
Amount of rent paid
Signature of the landlord

Moreover, the rental agreement should include the rental payment method as cash, among other payment modes like UPI, bank transfer, cheque, etc.

Why is online rent payment better than cash payment?

Paying rent in cash is easy and quick and mostly suitable for people who do not have access to digital facilities such as phone and internet connection. However, it comes with some disadvantages such as a lack of payment proof in case no receipts are given. Hence, there are greater risks of disputes between tenants and landlords.

Payment of rent via online mode, on the other hand, ensures better transparency in tenant-landlord relationships. Online systems used for paying rent will provide transaction history and helps in easy tracking of payments. Like cash payments, online payments like UPI are also quick and convenient. More importantly, since there is documented proof of payments, the risk of disputes is reduced.

Housing.com POV

Paying rent in cash is legally allowed but one should check the rules for financial transactions set by the government. To avoid misunderstandings or disputes, it is better to discuss the mode of payment at the time of signing the rental agreement. When paying rent to landlords, tenants should maintain copies of payment records and rent receipts. This makes the rental experience free of disputes or confusion for both parties.

FAQs

Is it mandatory for landlords to give a receipt for cash rent payments?

Yes. Landlords should provide a signed receipt after receiving rent payment in cash. This helps them maintain a proper record of their financial transaction and benefits the tenants who want to claim HRA benefits.

Can tenants claim HRA if they pay rent in cash?

Tenants can claim HRA benefits even if they pay rent in cash, provided they have supporting documents such as signed rent receipts and landlord’s PAN copy.