Salary in cash or by bank transfer? Rules for clinic staff pay What the Code on Wages and the Income-tax Act, 2025 say about how, when and how much.

Paying clinic staff by bank transfer is not compulsory under labour law, but it is the only sensible choice once a salary crosses ₹10,000 a month. The Code on Wages, 2019 lets an employer pay wages in cash, by cheque, by bank credit or electronically (section 15). The Income-tax Act, 2025, in force since 1 April 2026, then refuses the deduction for any payment above ₹10,000 made in a day to one person other than through a specified banking or online mode (section 36(4)). A receptionist's ₹16,000 paid in cash is a legal wage and a non-deductible expense at the same time.

Which law governs how wages are paid in 2026?

The Code on Wages, 2019. Notification S.O. 5322(E) of 21 November 2025 appointed that day as the date on which sections 1 to 41, 43 to 66 and most of the remainder of the Code came into force. Section 69(1) repealed the Payment of Wages Act, 1936, whose section 6 was the old rule on cash and cheque. Chapter III of the Code, "Payment of Wages", now carries the rules on mode, wage period, time limit and deductions, and it applies to every employer from the first employee; there is no head-count threshold for this chapter.

Can a clinic pay salary in cash?

Yes, under the Code. Section 15 reads: "All wages shall be paid in current coin or currency notes or by cheque or by crediting the wages in the bank account of the employee or by the electronic mode". The proviso lets the appropriate Government, which for a private clinic is the State Government, "specify the industrial or other establishment, the employer of which shall pay to every person employed in such industrial or other establishment, the wages only by cheque or by crediting the wages in his bank account". Check your state labour department's notifications before relying on cash; a state order can take the cash option away for a class of establishments.

What does the income-tax law say about cash salary?

Section 36(4) of the Income-tax Act, 2025 says: "Where in respect of any expenditure incurred by the assessee, any payment or aggregate of payments made in a day to a person exceeds ₹10000 and is not made through specified banking or online mode, then the expenditure by way of such payments shall not be allowed as a deduction." Section 36(5) applies the same test to a liability booked in an earlier year and paid later. The Act, by section 1(3), came into force on 1 April 2026, so this is the rule for the 2026-27 tax year onwards. CAs will know it as the rule that used to sit in section 40A(3) of the 1961 Act.

For a clinic the arithmetic is simple. Salary is the largest expense after rent. If ₹16,000 a month is paid in cash to one person, that is ₹1,92,000 a year the clinic cannot deduct from its professional income. Splitting the payment into two cash instalments on different days keeps each under ₹10,000 but invites the question of why; a bank transfer removes the question. Doctors on the presumptive scheme under section 58 of the 2025 Act (the old 44ADA) do not claim expenses line by line, so the disallowance does not bite them in the same way; the labour-law duties still do.

By which date must salary be paid?

The seventh-day rule is the one clinics miss. A clinic that pays on the tenth because collections are slow at month end is late under section 17(1)(iv) every month. The two-working-day rule on resignation is the other: the final settlement cannot wait for the next pay run.

What may be deducted from a clinic employee's salary?

Section 18(1) says "there shall be no deductions from the wages of the employee, except those as are authorised under this Code", and section 18(2) lists the purposes. The ones a clinic meets are fines (18(2)(a)), absence from duty (18(2)(b)), damage to or loss of goods entrusted to the employee or loss of money for which the employee must account, where directly attributable to neglect or default (18(2)(c)), recovery of advances and adjustment of overpaid wages (18(2)(f)), income-tax and statutory levies (18(2)(h)), and contributions to a provident fund, pension fund or health insurance scheme constituted by law (18(2)(i)). A cash shortage at the counter can be recovered only within the limits of 18(2)(c); a flat "breakage" cut from everyone's salary is not on the list.

Statutory deductions for provident fund and ESI arise only once the clinic is covered by those chapters of the Code on Social Security, which starts at twenty and ten staff respectively. Our post on PF and ESI for small clinics has the thresholds, rates and ceilings; a clinic below both has no PF or ESI line on the payslip at all.

What records and slips does a clinic have to keep?

1. A register of persons employed, muster roll and wages, "in such manner as may be prescribed" (s.50(1)). The state's Wages rules prescribe the form; keep it electronically if the rules allow.
2. A notice on the notice board with the abstract of the Code, category-wise wage rates, the wage period, the day or date and time of payment and the Inspector-cum-Facilitator's name and address (s.50(2)).
3. A wage slip to every employee "in such form and manner as may be prescribed" (s.50(3)). A bank transfer with a narration is not a wage slip; issue one on paper or by message every month.
4. For the tax file: the bank statement line for each salary credit, the wage register and the slips. This is what your CA needs to defend the salary deduction; our post on the monthly accounts pack for your CA lists the rest.

A pay routine that passes both tests

1. Fix a wage period of one month and a pay date on or before the 7th. Put both in the appointment letter and on the notice board.
2. Open a salary account for every employee, or use their existing account. Pay by NEFT, IMPS or UPI from the clinic's current account, with the employee's name and the month in the narration.
3. Compute deductions only from the section 18 list, and show each on the slip.
4. Pay a leaver's dues within two working days, by transfer, and keep the acknowledgment.
5. Reserve cash for sums under ₹10,000 in a day where a transfer is impossible, and record the voucher with the employee's signature.