New cash transaction rule takes effect from today; Cash limit slashed to Rs 500,000

KATHMANDU: A new restriction on cash transactions has come into force from Thursday, mandating that any transaction exceeding Rs 500,000 must be conducted through banks or formal financial channels. The move marks a significant tightening of Nepal’s cash economy as the government steps up efforts to curb tax evasion, illicit financial flows, and money laundering.

The decision was taken by the Cabinet on Mangsir 16 and implemented following its publication in the Nepal Gazette. The new rule halves the previous cash transaction ceiling of Rs 1 million, which had been in force since mid-2017.

What changes from today

Under the revised provision, cash payment is no longer allowed for the purchase or sale of goods and services worth Rs 500,000 or more. Any such transaction must now be settled through banks, either via account-payee cheques, bank transfers, or digital payment instruments.

Until Wednesday, transactions up to Rs 1 million could be settled in cash. With the new rule in effect, the permissible cash transaction limit has been reduced by 50 percent.

Why the government tightened cash controls

Large volumes of transactions in Nepal are still conducted in cash, which authorities say has enabled tax evasion, use of illicit funds, and underreporting of economic activity. Economic analysts have long urged the government to reduce the cash ceiling, arguing that excessive cash use weakens transparency and accountability in the economy.

The Ministry of Finance says the measure is not a discretionary policy choice but an economic necessity. According to ministry spokesperson Tankaprasad Pandey, routing transactions through banks improves traceability of money flows, strengthens tax compliance, and helps formalise the economy.

The government has also linked the reform to its anti–money laundering commitments, stating that stricter cash limits will support efforts to control illegal funds, terrorist financing, and the shadow economy, while encouraging wider use of the banking system.

Cheque and payment rules also tightened

Alongside cash restrictions, Nepal Rastra Bank (NRB) has also tightened rules related to cheque payments. Previously, payments above Rs 1 million were required to be made using account-payee cheques. This threshold has now been lowered to Rs 500,000.

Under NRB’s integrated directive, any payment exceeding Rs 500,000 must be made through an account-payee cheque or credited directly to the beneficiary’s bank account. Cheques issued in the name of firms, companies, institutions, or offices must also be strictly account-payee.

Banks and financial institutions have been assigned greater responsibility for monitoring compliance. Institutions must maintain updated monthly records of cash payments exceeding the limit to help identify and investigate suspicious transactions.

Applicability to microfinance and cooperatives

The new rule applies not only to commercial banks but also to microfinance institutions and cooperatives. NRB has directed ‘Class D’ microfinance institutions to make all payments above Rs 500,000 through cheques, reducing the earlier threshold of Rs 1 million.

Savings and credit cooperatives have also begun issuing notices limiting cash transactions to Rs 499,999, with any higher amount required to pass through banking channels.

Where cash use is still allowed

The regulation does not impose a blanket ban on cash transactions. Several exceptions have been предусмотрed to avoid disruption in essential services and sectors.

Cash may still be used for depositing money in banks, savings transactions, and foreign currency exchange. Repayment of loan principal and interest to banks, as well as interbank transactions, are exempt from the limit.

Individuals may carry more than Rs 500,000 in cash from one place to another, provided the source and purpose of the funds are clearly disclosed. Banks may also release cash beyond the limit in special cases if justified by the account holder.

Payments of wages and salaries for workers and staff involved in infrastructure projects such as hydropower, roads, and communications are exempt. Government revenue collection, penalties, security deposits, pension payments, relief distribution, and subsidies will continue under existing arrangements.

Remittance companies and agents, as well as daily transactions between cooperatives and their members, have also been granted operational flexibility.

Push toward a formal economy

With the new rule now in force, authorities expect a gradual shift away from cash-based transactions toward formal banking and digital payment systems. While businesses and consumers may face short-term adjustment challenges, the government maintains that tighter cash controls are essential to improve transparency, strengthen fiscal discipline, and bring Nepal’s largely cash-driven economy into the formal financial system.