The Reserve Bank of India (RBI) has established limits on cash transactions to prevent scrutiny from the Income Tax Department. While daily expenses like groceries can be paid in cash, large payments for property, gold, or cars are restricted. For instance, cash payments exceeding Rs 2 lakh for property are not allowed and can incur penalties. Transactions above Rs 30 lakh for immovable property are reported, requiring verification of fund sources. Understanding these limits is crucial to avoid penalties and unwanted attention from tax authorities.