Cash Transaction Ceiling Cut to Rs 500,000 From Mid-January

The government is set to tighten controls on cash-based transactions by lowering the permissible cash transaction ceiling to Rs 500,000, effective from Magh 1. The new limit replaces the previous Rs 1 million threshold and is part of a broader effort to strengthen financial transparency and curb illicit money flows in the economy.

The revised provision has been incorporated into the unified directives issued by Nepal Rastra Bank to banks and financial institutions. The central bank has instructed all regulated institutions to enforce the government’s decision, which was taken under the authority of the Asset (Money) Laundering Prevention Act, 2008 (2064 BS).

Under the new rule, any transaction involving Rs 500,000 or more—whether for goods, services, or other payments—must be conducted through the formal banking system. Individuals, firms, companies, and institutions are now required to use banking channels or instruments such as cheques, drafts, or electronic transfers instead of cash for high-value transactions.

The central bank has also clarified that cash deposits exceeding Rs 500,000 will only be accepted when the money is deposited directly into the account of the concerned individual or entity. This provision aims to improve traceability of funds and discourage the use of third-party cash transactions, which are often associated with informal or unreported economic activity.

Officials say the move is primarily driven by the government’s intention to reduce money laundering risks and strengthen compliance with international anti-money laundering standards. By lowering the cash ceiling, authorities expect to limit the scope for unaccounted transactions and improve the audit trail within the financial system.

Microfinance institutions have also been brought under tighter discipline. According to the directive, microfinance institutions must make payments of Rs 500,000 or more exclusively through account-payee cheques, aligning their operations with the broader objective of the anti-money laundering law. This marks a significant shift for institutions that traditionally relied more heavily on cash-based operations.

However, the central bank has clarified that the new ceiling will not disrupt salary and wage payments in priority infrastructure sectors. Payments to workers and employees involved in hydropower projects, road construction, telecommunications, and other nationally significant infrastructure projects will continue without obstruction, ensuring that development activities are not adversely affected.

Certain transactions have been explicitly exempted from the cash ceiling. These include deposit collection at banks and financial institutions, savings transactions, foreign exchange exchange services, repayment of loan principal and interest, and cash transactions conducted between financial institutions themselves. In these cases, the mandatory use of banking instruments will not apply.

Similarly, the new provision does not restrict cash payments related to government revenue payments, security deposits, court-mandated guarantees, pension distribution through pension camps, or procurement-related payments for development projects. These exemptions indicate that the policy is designed to regulate commercial cash transactions rather than routine or legally mandated payments.

The central bank has also assured that the policy will not hinder social welfare payments, government relief and subsidy distribution, or remittance payouts by licensed remittance companies and agents. In addition, savings and credit cooperatives will continue to be allowed to conduct daily cash transactions with their members, acknowledging the operational realities of cooperative-based financial services.

The government had initially decided to reduce the cash transaction ceiling on Mangsir 15, and the Ministry of Finance formally published the decision in the Nepal Gazette last week. With the implementation of the new rule, a previous notice issued on Chaitra 10, 2073 will be rendered void.

Economists view the move as a step toward deepening financial formalization, though they caution that effective enforcement and public awareness will be key. While the lower cash ceiling may initially pose adjustment challenges for businesses accustomed to cash dealings, analysts argue that it could ultimately strengthen financial discipline and support long-term economic governance.