Salary in Cash: Is a 12 Lakh CTC Legitimate or a Red Flag?

Is it legitimate to receive a CTC of 12 lakhs with the salary paid in cash by the employer?

Hi Tarun,

Your question is not clear. Can you reform your sentence or question so that we can better understand you and clarify the issue to your satisfaction?

Dear Tarun-Sachdeva1,

Rs.12 lakhs CTC per annum means per month it comes to Rs. 1 lakh. Maybe monthly gross not less than 50 K. It seems you are from Mumbai, i.e., from the State of Maharashtra.

In Maharashtra, if the Payment of Wages Act is applicable to the employee, then it is mandatory for you to pay him the salary by cheque or bank transfer. If the Payment of Wages Act is not applicable to the employee, then it is not mandatory for you to pay him the salary by cheque or bank transfer. However, it will be a violation of the Income Tax Law. Cash exceeding Rs. 20k is not permitted by the Income Tax Law. On the implementation of the Wage Code, you will not be allowed to pay by cash to any employee.

There is nothing wrong with paying in cash, but payment through a bank is safer for both employees and employers.

Dear Prabhat,

Sir, may I know on what basis you say that there is nothing wrong in paying salary by cash? Do you have anything contrary to what I said? I have given the provisions as applicable in Maharashtra under the POW Act. I have also provided the provisions under the Income Tax Act. Am I wrong in understanding anything?

Payment of Wages Act, 1936 Amendment

Going by the presumption that his salary is above Rs. 20,000 per month, he is not covered under the Payment of Wages Act, 1936. However, with the amendment in 2017, these provisions have to be ensured as reproduced hereunder:

"Further to amend the Payment of Wages Act, 1936. BE it enacted by Parliament in the Sixty-eighth Year of the Republic of India as follows:

1. (1) This Act may be called the Payment of Wages (Amendment) Act, 2017.
(2) It shall be deemed to have come into force on the 28th day of December, 2016.
2. For section 6 of the Payment of Wages Act, 1936, the following section shall be substituted, namely:
"6. All wages shall be paid in current coin or currency notes or by cheque or by crediting the wages in the bank account of the employee:
Provided that the appropriate Government may, by notification in the Official Gazette, specify the industrial or other establishment, the employer of which shall pay to every person employed in such industrial or other establishment, the wages only by cheque or by crediting the wages in his bank account."

Compliance with Income Tax Act Limitations

Apart from the above, compliance with the IT Act limitations is also necessary. The Central Board of Direct Taxes (CBDT) has amended the Income-tax Rules, 1962, to reduce the cash payment limit for payments made to a person in a day. The income tax rule 6DD, which deals with cases and circumstances in which a payment or aggregate of payments exceeding Rs. 20,000 may be made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, has been amended. The maximum amount for such cases under income tax rule 6DD stands at Rs. 10,000 now.

The amended Income Tax rule 6DD says: "Cases and circumstances in which a payment or aggregate of payments exceeding Rs. 10,000 may be made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as prescribed in rule 6ABBA."

The rule 6ABBA is deemed to have been inserted from the 1st day of September 2019, which mentions all digital or electronic modes of payments include:
(a) Credit Card
(b) Debit Card
(c) Net Banking
(d) IMPS (Immediate Payment Service)
(e) UPI (Unified Payment Interface)
(f) RTGS (Real Time Gross Settlement)
(g) NEFT (National Electronic Funds Transfer), and
(h) BHIM (Bharat Interface for Money) Aadhaar Pay.

The Central Board of Direct Taxes has made the rules to amend the Income-tax Rules, 1962, and the new rules may be called the Income-tax (3rd Amendment) Rules, 2020. In simple terms, payments other than through any electronic means, i.e., in cash, are restricted to Rs. 10,000 per day, wherever it is applicable.

Prof. Kumar,

This means what I said stands correct. If an employee falls under the Payment of Wages (POW) Act, then you cannot pay him in cash. The Maharashtra Government has issued a notification, as it appears to me from a Google search.

If the employee does not fall under the POW Act, you still cannot pay him in cash due to the provisions under the Income Tax Act.

The provisions of the Act/Rules are clear. It's better to avoid salary in cash; you don't invite troubles, isn't it.