Cash Restrictions Under Income Tax Act: Sections 269SS & 269ST Explained

     Cash transactions in India are strictly regulated under the Income Tax Act to curb black money, prevent tax evasion, and promote digital payments. The government has introduced several provisions to discourage large cash dealings and ensure transparency in financial transactions.

      "Learn about cash transaction limits under Income Tax Act in India. Understand Sections 269SS, 269ST, 269T, 40A(3), and more to stay compliant and avoid penalties."

Cash transactions in India are regulated under the Income Tax Act to curb black money and promote digital payments. Sections 269SS and 269ST were introduced to prevent large cash dealings that could lead to tax evasion and unaccounted money. In addition, Section 40A(3) disallows business expense deductions paid in cash beyond a limit, Section 43(1) restricts cash payments for acquiring capital assets, Section 269T prohibits repayment of loans, deposits, or specified advances in cash above the prescribed limit, and Section 80 subsections set limits on cash donations. These provisions collectively aim to reduce cash transactions, ensure transparency, and support the government’s push toward a digital economy.

Why Are Cash Restrictions Important?

The primary objective of these rules is to:

• Reduce unaccounted money in the economy.
• Encourage digital transactions.
• Prevent false explanations for cash inflows during tax assessment

Key Sections Related to Cash Transactions Under Income Tax Act (नकद लेन-देन से जुड़ी प्रमुख धाराएँ)

• Section 40A(3): Disallows a deduction for business expenditures exceeding ₹10,000 if paid in cash to a single person in a single day (limit is ₹35,000 for payments to transporters). The amount is added back to the business's taxable income.

धारा 40A(3): व्यवसायिक खर्च पर सीमा
            ₹10,000 से अधिक नकद भुगतान पर खर्च की कटौती नहीं मिलेगी।
            परिवहनकर्ताओं को भुगतान के लिए सीमा ₹35,000 है।

• Section 43(1): States that if any payment exceeding ₹10,000 for the acquisition of a capital asset is made in cash, that amount is ignored when calculating the "actual cost" of the asset for depreciation purposes.

धारा 43(1): पूंजीगत संपत्ति की खरीद
₹10,000 से अधिक नकद भुगतान करने पर संपत्ति की लागत में वह राशि नहीं जोड़ी जाएगी।

• Section 269SS: Prohibits a person from accepting loans, deposits, or "specified sums" (e.g., advances for immovable property) of ₹20,000 or more in cash. Such transactions must be through banking channels. Violation attracts a penalty equal to the amount of the loan/deposit accepted.

धारा 269SS: ऋण और जमा स्वीकार करने पर रोक
₹20,000 या उससे अधिक नकद में ऋण, जमा या अग्रिम स्वीकार करना प्रतिबंधित।
भुगतान केवल बैंकिंग चैनलों से होना चाहिए।
दंड: नकद में स्वीकार की गई राशि के बराबर।

• Section 269ST: Prohibits any person from receiving an amount of ₹2 Lakh or more in cash:
• in aggregate from a single person in a day;
• in respect of a single transaction; or
• in respect of transactions relating to one event or occasion from a single person.
  Violation attracts a penalty equal to the amount received.

धारा 269ST: बड़े नकद प्राप्तियों पर रोक

₹2 लाख या उससे अधिक नकद प्राप्त करना प्रतिबंधित:

• एक व्यक्ति से एक दिन में।
• एक ही लेन-देन में।
• एक ही कार्यक्रम या अवसर से संबंधित लेन-देन में।

दंड: प्राप्त राशि के बराबर।

• Section 269T: Prohibits the repayment of any loan, deposit, or "specified advance" of ₹20,000 or more in cash. Repayments must be made through an account payee cheque, draft, or ECS. Violation attracts a penalty equal to the amount repaid in cash.

धारा 269T: ऋण की नकद अदायगी पर रोक
₹20,000 या उससे अधिक नकद में ऋण चुकाना प्रतिबंधित।
भुगतान बैंकिंग माध्यम से होना चाहिए।
दंड: नकद में चुकाई गई राशि के बराबर।

• Section 80D: No tax deduction is allowed for health insurance premiums or medical expenses paid in cash, except for expenses on preventive health check-ups up to a limit of ₹5,000.

धारा 80D: स्वास्थ्य बीमा प्रीमियम

नकद भुगतान पर कटौती नहीं मिलेगी (₹5,000 तक की स्वास्थ्य जांच को छोड़कर)।

• Section 80G/80GGA/80GGB/80GGC: Deductions for donations to charitable institutions or political parties are not allowed if the cash donation exceeds ₹2,000.

धारा 80G और संबंधित धाराएँ: दान पर सीमा
₹2,000 से अधिक नकद दान पर कटौती नहीं मिलेगी।

• Section 194N: Requires banks, co-operative banks, and post offices to deduct TDS (Tax Deducted at Source) at a rate of 2% on cash withdrawals exceeding ₹1 Crore in a financial year (higher limits/rates apply in specific cases).

धारा 194N: नकद निकासी पर TDS

₹1 करोड़ से अधिक नकद निकासी पर 2% TDS लागू।

• Section 44AD: Under the presumptive taxation scheme for small businesses, a lower presumptive profit rate of 6% (instead of 8%) on turnover/gross receipts is applicable if the amount is received through digital/banking channels

धारा 44AD: डिजिटल भुगतान का लाभ

डिजिटल माध्यम से प्राप्त राशि पर अनुमानित लाभ दर 6% (8% के बजाय)।

 Timeline of Events: From Introduction to Current Enforcement

• 1984 – Section 269SS introduced via Finance Act to restrict acceptance of loans and deposits in cash above ₹20,000.
• 1988 – Section 269T added to prohibit repayment of loans/deposits in cash beyond ₹20,000.
• 2017 – Section 269ST introduced to ban cash receipts of ₹2 lakh or more in a single day, transaction, or event.
• 2016 – Income Tax Department issued Circular No. 10/2016 clarifying penalty timelines for Section 269SS violations.
• 2017–2019 – Post-demonetization, strong push for digital payments and stricter monitoring of cash transactions.
• 2020–2024 – Advanced enforcement tools and technology adopted to track high-value cash transactions.
• April 2025 – Supreme Court landmark judgment (Civil Appeal No. 5200 of 2025) mandates courts and sub-registrars to report cash transactions above ₹2 lakh.
• September 2025 – Income Tax Department releases a detailed brochure warning taxpayers about penalties for violating cash transaction rules, increasing public awareness.

Sections 269SS & 269ST: Short Description

Income Tax Bill, 2025: The proposed Bill largely carries forward the existing anti-abuse provisions (like sections 269SS and 269ST) into new clauses (Clause 185 and 186 respectively) with similar limits and objectives, indicating a continuation of the strict stance on large cash transactions. 

1] Section 269SS

Section 269SS of the Indian Income Tax Act prohibits any person from taking or accepting any loan, deposit, or specified sum of ₹20,000 or more in cash. All transactions exceeding this threshold must be conducted through traceable banking channels to curb black money and tax evasion. 

Key Provisions

• Mode of Transaction: The only permissible modes for transactions of ₹20,000 or more are:
• An account payee cheque or account payee bank draft.
• Use of an electronic clearing system (ECS) through a bank account.
• Other electronic modes such as NEFT, RTGS, IMPS, UPI, credit card, or debit card.
• Threshold Limit: The ₹20,000 limit applies to the aggregate amount of any loan, deposit, and specified sum, including any unpaid amounts from previous transactions with the same person.
• Objective: The primary aim of Section 269SS is to prevent taxpayers from providing false explanations for unaccounted funds during income tax assessments, a common method of tax evasion. 

Exceptions

The provisions of Section 269SS do not apply to loans or deposits taken from, or accepted by, the following entities: 

• The Government
• Any banking company, post office savings bank, or co-operative bank
• Any corporation established by a Central, State, or Provincial Act 

Penalty for Violation

Violation of Section 269SS attracts a penalty under Section 271D of the Income Tax Act. The penalty amount is equal to 100% of the loan, deposit, or specified sum accepted in cash. 

However, the penalty may be waived if the taxpayer can demonstrate a "reasonable cause" for the cash transaction, such as a genuine and immediate business necessity or circumstances beyond their control (e.g., lack of banking access in a rural area), provided there was no malafide intention to evade tax

धारा 269SS आयकर अधिनियम, 1961 के अंतर्गत एक महत्वपूर्ण प्रावधान है, जिसका उद्देश्य काले धन और कर चोरी को रोकना है। इस धारा के अनुसार कोई भी व्यक्ति ₹20,000 या उससे अधिक का ऋण, जमा या निर्दिष्ट राशि नकद में स्वीकार नहीं कर सकता। ऐसे लेन-देन केवल बैंकिंग माध्यमों से किए जा सकते हैं, जैसे अकाउंट पेयी चेक, अकाउंट पेयी बैंक ड्राफ्ट, या इलेक्ट्रॉनिक ट्रांसफर (NEFT, RTGS, UPI आदि)। यह सीमा कुल राशि पर लागू होती है, जिसमें पहले से लिया गया और बकाया ऋण भी शामिल है। इस नियम के कुछ अपवाद हैं, जैसे सरकार, बैंकिंग कंपनियाँ, डाकघर बचत बैंक, सहकारी बैंक और सरकारी निगम। यदि कोई व्यक्ति इस प्रावधान का उल्लंघन करता है, तो धारा 271D के तहत उस पर दंड लगाया जाएगा, जो नकद में स्वीकार की गई राशि के बराबर होगा। इस प्रावधान का मुख्य उद्देश्य वित्तीय लेन-देन में पारदर्शिता लाना और कर चोरी को रोकना है।

2] Section 269ST

Section 269ST was introduced by the government to curb the black money and tax fraud in the economy. Under the section, cash transactions exceeding Rs.2 lakh are prohibited with a view to promoting the digital economy. From now on, the courts and sub registrar offices should report cash transactions not less than Rs.2 lakhs to the respective jurisdictional Income Tax Offices as per the recent Supreme Court Judgement. 

Key Provisions

Section 269ST prohibits any person to receive an amount of Rs.2 lakh and above in cash:

• In aggregate from a person in a day, or 
• In a single transaction, or 
• In respect of transactions relating to one event or occasion from a person.  

Exemptions From the Scope of Section 269ST

The provisions section 269ST is applicable to all the taxpayers, excluding the exceptions below:

• Government
• any banking company
• post office savings bank
• co-operative bank
• other persons/receipts as may be notified
• Transactions referred to in section 269SS (attracted when we accept loan from any person) will be excluded from the scope of the new section 269ST.

Repayment of Loan Instalments – Section 269ST 

1. After introducing this section, various representations were sent by NBFCs and HFCs as to whether the limit of Rs.2 lakh shall apply to one instalment of loan repayment or for the whole amount of such repayment.
2. In this context, the income tax department clarified that if you are repaying the loan to NBFCs or HFCs, the one instalment of loan repayment shall constitute a single transaction.
3. And so if the single loan instalment amount is less than Rs.2 lakh, it can be paid in cash. All the instalments paid for a loan shall not be aggregated for the purposes of determining the applicability of the Rs.2 lakh limit.

 Section 269ST of Income Tax Act - Clarification on the repayment of Loan Instalments in Cash

Section 269ST of the Income Tax Act was introduced to stop black money and encourage digital payments. It prohibits receiving ₹2 lakh or more in cash in a single day, for one transaction, or for transactions related to one event. Violating this rule can lead to a penalty equal to the amount received.

Recently, the Supreme Court, in the case RBANMS Educational Institution vs. B. Gunashekar (April 16, 2025), stressed the importance of this section. In that case, one party claimed to have received ₹75 lakh in cash as an advance for a property deal, which is a clear violation of Section 269ST. The Court said the payer must also explain why such a large amount was paid in cash and its source.

To ensure compliance, the Court directed that:

• If a lawsuit involves a claim of ₹2 lakh or more paid in cash, the court must inform the Income Tax Department.
• If a property registration document shows cash payment of ₹2 lakh or more, the Sub-Registrar must report it to the tax authorities.

 Introduction of Penal Provisions 

1. The government has also introduced penalty provisions if Section 269ST is violated. 
2. If a person receives the amount in cash over the above-specified limit of Rs.2 lakh, he is liable to pay a penalty equal to the amount received in cash. 
3. Thus, it is very important to ensure that you do not receive cash of Rs.2 lakh and above in a single transaction, aggregate from a person in a day, or in respect to transactions relating to one event or occasion from a person

धारा 269ST आयकर अधिनियम, 1961 के अंतर्गत एक महत्वपूर्ण प्रावधान है, जिसका उद्देश्य बड़े नकद लेन-देन को रोकना और डिजिटल भुगतान को बढ़ावा देना है। इस धारा के अनुसार कोई भी व्यक्ति ₹2 लाख या उससे अधिक की राशि नकद में प्राप्त नहीं कर सकता। यह प्रतिबंध तीन स्थितियों में लागू होता है – (1) एक व्यक्ति से एक दिन में ₹2 लाख या अधिक प्राप्त करना, (2) एक ही लेन-देन में ₹2 लाख या अधिक प्राप्त करना, और (3) एक ही कार्यक्रम या अवसर से संबंधित लेन-देन में ₹2 लाख या अधिक प्राप्त करना। इन नियमों के अपवादों में सरकार, बैंकिंग कंपनियाँ, डाकघर बचत बैंक, सहकारी बैंक और अधिसूचित संस्थाएँ शामिल हैं। यदि कोई व्यक्ति इस प्रावधान का उल्लंघन करता है, तो धारा 271DA के तहत उस पर दंड लगाया जाएगा, जो नकद में प्राप्त की गई राशि के बराबर होगा। इस प्रावधान का मुख्य उद्देश्य कर चोरी को रोकना, वित्तीय पारदर्शिता सुनिश्चित करना और डिजिटल अर्थव्यवस्था को प्रोत्साहित करना है।

Comparison Table: Section 269SS vs Section 269ST

Key Cash Transaction Limits in India

Transaction Type	Limit	Applicable Rule & Penalty (if any)
Cash Receipts	₹2 lakh (from a single person in a single day, for one or related transactions/events)	Penalty (on the receiver) is 100% of the cash amount received under Section 269ST.
Business Expenses	₹10,000 (per person, per day)	Cash payments above this limit are disallowed as a tax deduction for the business under Section 40A(3).
Transporter Payments	₹35,000 (per person, per day for plying/hiring goods carriages)	Payments above this limit are disallowed as a tax deduction.
Loans or Deposits (Accepting/Repaying)	₹ 20,000	Accepting (Section 269SS) or repaying (Section 269T) cash loans/deposits of ₹20,000 or more is prohibited. Penalty is 100% of the amount.
Immovable Property Transactions	₹20,000 (for advances or any part payment)	Any transaction for property sale/purchase with cash exceeding this limit makes the seller liable for a penalty. The total property value of ₹30 lakh or more is reported to the IT Department by the registrar.
Cash Gifts (from non-relatives)	₹50,000 (in a financial year)	Cash gifts from non-relatives exceeding this amount are fully taxable for the recipient. Gifts from specified relatives or on the occasion of marriage are exempt.
Health Insurance Premium Payment	Nil (no deduction allowed for cash payments)	To claim a deduction under Section 80D, payment must be made via banking channels, except for preventive health check-ups (up to ₹5,000 in cash is allowed).
Donations	₹ 2,000	Cash donations to registered trusts or political parties exceeding ₹2,000 are not eligible for deduction under Section 80G.

 

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✅ What to Do (क्या करें)

• Use Banking Channels: Always make payments or accept money above the prescribed limits through account payee cheque, bank draft, NEFT, RTGS, UPI, or other digital modes.
• Maintain Transparency: Keep proper records of all transactions to avoid penalties.
• Follow Limits:
• Loans/Deposits: Do not accept ₹20,000 or more in cash (Section 269SS).
• Cash Receipts: Do not receive ₹2 lakh or more in cash in a single day, transaction, or event (Section 269ST).
• Prefer Digital Payments: For business expenses, capital asset purchases, and donations, use banking channels to claim deductions.
• Check Exceptions: Government entities, banks, and notified institutions are exempt from these restrictions.

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❌ What NOT to Do (क्या न करें)

• Do NOT Accept Large Cash Loans: Never accept ₹20,000 or more in cash as a loan, deposit, or advance.
• Do NOT Receive High Cash Amounts: Avoid receiving ₹2 lakh or more in cash from any person in one day or for one transaction/event.
• Do NOT Repay Loans in Cash: Repayment of ₹20,000 or more in cash is prohibited (Section 269T).

• Do NOT Make Large Business Payments in Cash: Business expenses above ₹10,000 in cash will be disallowed.

• Do NOT Give Cash Donations Above ₹2,000: Such donations are not eligible for tax deduction

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Disclaimer

    This article is intended for informational and educational purposes only. It summarizes certain provisions of the Indian Income Tax Act related to cash transactions, such as Sections 269SS, 269ST, and others. The content should not be considered as professional tax advice or a substitute for consultation with a qualified tax advisor or legal professional. Tax laws and regulations are subject to change, and individual circumstances may vary. Readers are advised to verify the latest provisions and seek expert guidance before making any financial or compliance decisions.

यह लेख केवल जानकारी और शैक्षिक उद्देश्य के लिए है। इसमें भारतीय आयकर अधिनियम की नकद लेन-देन से संबंधित कुछ धाराओं जैसे 269SS, 269ST आदि का सारांश दिया गया है। यह सामग्री पेशेवर कर सलाह या कानूनी परामर्श का विकल्प नहीं है। कर कानून समय-समय पर बदल सकते हैं और व्यक्तिगत परिस्थितियाँ अलग हो सकती हैं। पाठकों को सलाह दी जाती है कि वे नवीनतम प्रावधानों की पुष्टि करें और किसी योग्य कर सलाहकार या कानूनी विशेषज्ञ से मार्गदर्शन प्राप्त करें, इससे पहले कि कोई वित्तीय या अनुपालन निर्णय लें।