Nepal Introduces Cash Transaction Cap of NPR 500,000 Starting January 15

The Nepalese government has announced a regulation limiting cash transactions to a maximum of NPR 500,000 (around Rs 3,13,287) for buying or selling goods and services. This new rule will take effect on January 15. According to this directive, any transactions of NPR 500,000 or more must be processed through financial institutions or banking methods, including bank transfers, account-payee cheques, and other formal banking tools.

This decision aligns with the Asset (Money) Laundering Prevention Act, 2008 granting the government the authority to limit cash transactions to deter illegal financial activities. The aim is to address serious issues like money laundering and terrorism financing, often aided by significant cash exchanges. The timing is crucial, as Nepal has recently re-entered the "grey list" by the Financial Action Task Force (FATF), which emphasizes the necessity for stricter financial regulations and transparency to tackle their concerns.

There are key exceptions to this rule: it does not apply to cash deposits in financial institutions, loan repayments (including principal and interest) to banks, or when financial institutions conduct cash transactions among themselves. Additionally, individuals are free to carry cash within Nepal, as long as the source and purpose are properly documented.

In accordance with this new regulation, Nepal Rastra Bank, the nation's central bank, has issued a policy to all licensed banks and financial entities. This policy requires that any payment of NPR 500,000 or more must be executed via an account-payee cheque or through direct deposits into the relevant recipient’s bank account. This regulation also applies to cheques made out to businesses, institutions, or organizations, which must be strictly treated as account-payee cheques to maintain accountability.

Moreover, the central bank has allowed for certain exceptions when a depositor needs cash exceeding NPR 500,000. In such cases, if a formal application is submitted explaining the legitimate reason, and the bank deems the rationale sufficient, cash payments that exceed the established limit may be permitted.

This policy is part of Nepal's larger initiative to enhance transparency and accountability in financial dealings and to meet global benchmarks for preventing financial crime. It underscores the government’s resolve to fortify the national financial system and tackle financial wrongdoing.