Rule 26 of the Draft Income-tax Rules, 2026 specifies circumstances where payments exceeding ₹10,000 in a day, made otherwise than through prescribed banking or electronic modes under rule 48, will not attract disallowance under section 36(4) nor be deemed income under section 36(5). Exempted payments include those made to the Reserve Bank of India, banking companies, State Bank of India and its subsidiaries, co-operative banks, land mortgage banks, primary agricultural credit societies, and the Life Insurance Corporation of India. Payments made to the Government where legal tender is mandated are also covered. Further, transactions routed through banking instruments such as letters of credit, mail or telegraphic transfers, book adjustments between bank accounts, and bills of exchange payable to banks qualify for relief. Adjustments against liabilities for goods supplied or services rendered by the assessee to the payee are also excluded from disallowance.
The Rule additionally exempts payments for purchase of agricultural or forest produce, animal husbandry and dairy products, fish and fish products, and horticulture or apiculture products directly from cultivators, growers, or producers. Purchases from cottage industries manufacturing without power are also covered. Payments made in villages or towns not served by banks to residents or persons carrying on business there qualify for exception. Terminal benefits up to ₹50,000 paid to employees or their heirs upon retirement or death are excluded. Salary payments to employees temporarily posted for fifteen days or more in places without banking facilities are also protected. Further exemptions apply to payments made to agents for cash transactions and to authorised dealers or money changers for foreign currency transactions. The Rule defines “bank” broadly, including certain foreign banks, and clarifies the meaning of authorised dealer and money changer.
Extract of Rule No. 26 of Draft Income-tax Rules, 2026
Rule 26
Cases and circumstances in which a payment or aggregate of payments exceeding ten thousand rupees may be made to a person in a day, otherwise than by specified banking and online mode or through such other electronic mode as prescribed in rule 48
(1) No disallowance under section 36(4) of the Act shall be made and no payment shall be deemed to be the profits and gains of business or profession under section 36(5) of the Act where a payment or aggregate of payments made to a person in a day, otherwise than by a specified banking or online mode or through such other electronic mode as prescribed in rule 48, exceeds ten thousand rupees, in the cases and circumstances specified hereunder, namely :-
(a) where the payment is made to-
(i) the Reserve Bank of India or any banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949);
(ii) the State Bank of India or any subsidiary bank as defined in section 2 of the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959);
(iii) any co-operative bank or land mortgage bank;
(iv) any primary agricultural credit society or any primary credit society as defined under section 56 of the Banking Regulation Act, 1949 (10 of 1949);
(v) the Life Insurance Corporation of India established under section 3 of the Life Insurance Corporation Act, 1956 (31 of 1956);
(b) where the payment is made to the Government and, under the rules framed by it, such payment is required to be made in legal tender;
(c) where the payment is made by-
(i) any letter of credit arrangements through a bank;
(ii) a mail or telegraphic transfer through a bank;
(iii) a book adjustment from any account in a bank to any other account in that or any other bank;
(iv) a bill of exchange made payable only to a bank;
(d) where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee;
(e) where the payment is made for the purchase of-
(i) agricultural or forest produce; or
(ii) the produce of animal husbandry (including livestock, meat, hides and skins) or dairy or poultry farming; or
(iii) fish or fish products; or
(iv) the products of horticulture or apiculture, to the cultivator, grower or producer of such articles, produce or products;
(f) where the payment is made for the purchase of the products manufactured or processed without the aid of power in a cottage industry, to the producer of such products;
(g) where the payment is made in a village or town, which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town; Draft Income-tax Rules, 2026 34
(h) where any payment is made to an employee of the assessee or the heir of any such employee, on or in connection with the retirement, retrenchment, resignation, discharge or death of such employee, on account of gratuity, retrenchment compensation or similar terminal benefit and the aggregate of such sums payable to the employee or his heir does not exceed fifty thousand rupees;
(i) where the payment is made by an assessee by way of salary to his employee after deducting the income-tax from salary in accordance with the provisions of section 392 of the Act, and when such employee-
(i) is temporarily posted for a continuous period of fifteen days or more in a place other than his normal place of duty or on a ship; and
(ii) does not maintain any account in any bank at such place or ship;
(j) where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person;
(k) where the payment is made by an authorised dealer or a money changer against purchase of foreign currency or travelers cheques in the normal course of his business.
(2) For the purposes of this rule –
(a) the term “bank”, in clause (c) and clause (g), means any bank, banking company or society referred to in sub-clauses (i) to (iv) of clause (a) and includes any bank not being a banking company as defined in clause
(c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949), whether incorporated or not, which is established outside India;
(b) “authorised dealer” or “money changer”, in clause (k), means a person authorised as an authorised dealer or a money changer to deal in foreign currency or foreign exchange under any law for the time being in force.
