Rule 26 of the Draft Income Tax Rules, 2026 specifies the circumstances where payment of more than ₹10,000 in a day other than the banking or electronic mode prescribed under Rule 48 will not attract disallowance under section 36(4) nor be treated as income under section 36(5). Exempt payments include payments 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 Life Insurance Corporation of India. Payments made to the government where legal tender is mandatory are also included. In addition, transactions made through banking instruments such as letters of credit, mail or telegraphic transfers, book adjustments between bank accounts and bills of exchange payable to banks are eligible for relief. Adjustments against liabilities for goods supplied or services provided by the taxpayer to the payer are also excluded from disallowance.
The rule additionally exempts payments for purchases of agricultural or forest produce, animal husbandry and dairy products, fish and fish products, and horticultural or beekeeping products directly from farmers, growers or producers. Also includes procurement from cottage industries manufacturing without electricity. Payments made in villages or towns which are not made by banks to residents or persons carrying on business there qualify for the exception. Terminal benefits up to ₹50,000 paid to employees or their heirs on retirement or death are excluded. Salary payment to employees temporarily deployed for fifteen days or more at places without banking facilities is also protected. Further exemptions apply to payments made to agents for cash transactions and to authorized dealers or money changers for foreign exchange transactions. The rule defines “bank” broadly, including certain foreign banks, and clarifies the meaning of authorized dealer and money changer.
Extract of Rule No. 26 of the Draft Income Tax Rules, 2026
Rule 26
Cases and circumstances in which payment or aggregate payment to any person exceeding ten thousand rupees in a day may be made through other electronic modes other than the specified banking and online modes or prescribed in rule 48.
(1) No disallowance shall be made under section 36(4) of the Act and no payment shall be deemed to be profits and gains of business or profession under section 36(5) of the Act, where the payment or the aggregate of payments made to any person in a day other than through a specified banking or online mode or through such other electronic mode as is prescribed in rule 48, in the cases and circumstances specified herein, exceeds ten thousand rupees, namely: –
(a) where the payment is made—
(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) a 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 rules made by it, such payment is required to be made in legal tender;
(c) where the payment is made—
(i) any letter of credit arrangement through any bank;
(ii) mail or telegraphic transfer through a bank;
(iii) book adjustment from any account of any bank to any other account of that or any other bank;
(iv) Bills of exchange payable only to the bank;
(d) where the payment is made by way of adjustment against the amount of any liability incurred by the recipient for any goods supplied or services rendered by the assessee to such payer;
(e) where payment is made for the purchase of—
(i) agricultural or forest produce; Or
(ii) produce of animal husbandry (including livestock, meat, hides and skins) or dairy or poultry; Or
(iii) fish or fish products; Or
(iv) horticultural or bee-keeping produce, to the cultivator, grower or manufacturer of such goods, produce or products;
(f) where payment is made to the manufacturer of such products for the purchase of products manufactured or processed without the aid of power in a cottage industry;
(g) where the payment is made in any village or town, which is not, on the date of such payment, made by any bank to any person ordinarily residing, or 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 any employee of the assessee or the successor of such employee on or in connection with his retirement, retrenchment, resignation, discharge or death by reason of gratuity, retrenchment compensation or similar terminal benefit and the aggregate of such sums payable to the employee or his successor does not exceed fifty thousand rupees;
(i) Where the amount is paid by an assessee as salary to his employee after deduction of income-tax from the 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 to a place or ship other than his place of normal duty; And
(ii) does not maintain any account in any bank at such place or on board the ship;
(j) where payment is made by a person to his agent who is required to make cash payment for goods or services on behalf of such person;
(k) Where the payment is made by an authorized dealer or money changer in the ordinary course of his business against the purchase of foreign currency or travelers cheque.
(2) For the purposes of this rule –
(a) The word “bank” in clauses (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 which is not a banking company as defined in clause (a).
(c) section 5 of the Banking Regulation Act, 1949 (10 of 1949), whether incorporated or not, which is established outside India;
(b) in clause (k) “authorised dealer” or “money changer” means a person authorized as a dealer or money changer to deal in foreign currency or in foreign exchange under any law for the time being in force.