Cash Transactions under IT Act

Cash Transactions under IT Act: Every Limit, Penalty and Practical Rule for FY 2026-27

India's Income Tax Act, 1961 embeds hard cash limits in four key sections. For FY 2026-27 (Assessment Year 2027-28), the numbers you must internalise are: no cash loan or deposit of ₹20,000 or more (Section 269SS), no cash receipt of ₹2 lakh or more from one person in a day or for one event (Section 269ST), no cash repayment of ₹20,000 or more (Section 269T), and no cash business payment exceeding ₹10,000 per person per day (Section 40A(3)). Breach any of these and the penalty is 100% of the cash amount — with no sliding scale, no first-offence leniency.

The Four Cash Limits at a Glance

Before going section by section, pin this reference to your desktop:

The penalties under Sections 271D, 271E, and 271DA are each equal to 100% of the cash amount involved. A ₹2,00,001 cash receipt attracts a ₹2,00,001 penalty — on top of any tax liability.

Section 269SS: No Cash Loans or Deposits of ₹20,000 or More

What the law says: No person shall take or accept any loan, deposit, or specified sum of ₹20,000 or more otherwise than by account payee cheque, account payee bank draft, electronic clearing system (ECS), NEFT, RTGS, IMPS, UPI, or any other mode prescribed under Rule 6ABBA.

The phrase specified sum — inserted with effect from 1 June 2015 — means any sum receivable as advance or otherwise in relation to the transfer of immovable property, even if the transfer ultimately does not take place. This is the provision that catches builders collecting cash booking amounts before a project launches.

Who bears the penalty? The person who accepts the cash, not the one who gives it. The Joint Commissioner of Income Tax has jurisdiction to levy the 100% penalty under Section 271D.

Accepted electronic modes per Rule 6ABBA: NEFT, RTGS, IMPS, UPI, BHIM Aadhaar Pay, debit cards, credit cards, mobile banking applications, and prepaid payment instruments issued by RBI. A personal bearer cheque is not acceptable — it must be an account payee instrument crossed "A/c Payee Only."

Exceptions where cash is permitted:

• Loans from the Government or a banking company / cooperative bank / post office savings bank
• Loans from LIC, UTI, or Central Government–notified institutions
• Loans between individuals or HUFs where neither party has taxable income other than agricultural income
• Transactions specifically notified by the Central Government

"Between relatives" is not a general exemption. A ₹50,000 cash loan from your brother, repaid the same week, violates Section 269SS unless both of you qualify for the agricultural-income carve-out.

Section 269ST: The ₹2 Lakh Cash Receipt Cap

What the law says: No person shall receive ₹2 lakh or more in cash from a single person:

1. In aggregate in a single day, or
2. In respect of a single transaction, or
3. In respect of transactions relating to one event or occasion

The word aggregate in limb (1) is what trips people up. Five payments of ₹42,000 each from the same customer on the same day = ₹2,10,000 aggregate. Every rupee of those five payments is caught, not just the incremental amount above ₹2 lakh.

What constitutes one "event or occasion"? The Act does not define it exhaustively, but accepted interpretations include: a wedding ceremony, a birthday celebration, a single construction contract, one academic session's fee, one property registration. If multiple cash installments relate to the same underlying event, they are aggregated regardless of on which days they were received.

Who bears the penalty? The receiver — under Section 271DA at 100% of the amount received.

Exceptions to Section 269ST:

• Receipts from Government
• Receipts from banking companies, cooperative banks, and post offices
• Transactions of the nature specified in Section 269SS (bank disbursements, etc.)
• Persons notified by the Central Government

Section 269T: Cash Repayment of Loans Is Equally Restricted

What the law says: No person shall repay any loan, deposit, or specified advance where the aggregate of the principal and interest is ₹20,000 or more in cash. The threshold tests the total outstanding balance, not the individual instalment.

If you borrowed ₹16,000 and ₹5,800 of interest has accrued, the outstanding is ₹21,800. Any cash repayment — even a partial one — violates Section 269T if the aggregate outstanding at the time of repayment is ₹20,000 or more.

Penalty: Section 271E levies 100% of the amount repaid in cash on the repayer. If a borrower returns a ₹30,000 friendly loan in cash, the borrower faces a ₹30,000 penalty on top of having already parted with the money.

Section 40A(3): Cash Business Expenditure That Loses Its Deduction

What the law says: Any payment to a person in excess of ₹10,000 in a single day, made in cash, is wholly disallowed as a business or professional deduction. For payments to transporters (persons plying, hiring, or leasing goods carriages), the threshold is ₹35,000.

The ₹10,000 limit is per person per day. Splitting a ₹14,000 payment into two cash receipts of ₹7,000 each to the same supplier on the same day does not help — the aggregate per-person-per-day figure is the test.

Section 40A(3A) — the prior-year trap: If an expenditure was claimed as a deduction on accrual basis in FY 2025-26, and the cash payment is made in FY 2026-27 in excess of ₹10,000, that amount is added back as business income in FY 2026-27. Businesses that book expenses in one year but pay the vendor cash in the next year routinely get hit by this provision during scrutiny assessments.

Rule 6DD exceptions (the narrow, practical ones):

• Payment to RBI, any scheduled bank, cooperative bank, or LIC
• Payment for agricultural produce purchased from a cultivator, grower, or producer (not a trader)
• Payment in a village or town with no bank branch — only for permitted purposes
• Payment to government for taxes, fees, and fines
• Payment made when banks are disrupted (strike, natural calamity) — with documentary evidence

"The party wouldn't give their bank details" is not a Rule 6DD exception. If you cannot obtain banking details, withhold payment until you can.

Worked Example 1: One Property Deal, Multiple Violations

Scenario: Priya sells a commercial property in Bengaluru for ₹75 lakh in January 2027 (FY 2026-27). The buyer, Ramesh, makes these payments:

• Day 1: ₹2,50,000 in cash as booking advance
• Day 15: ₹3,00,000 in cash as part payment
• Day 30: ₹70,50,000 via RTGS at registration

Violation analysis:

Total penalty exposure on Priya: ₹11,00,000 — before capital gains tax on the ₹75 lakh sale proceeds.

Ramesh faces no penalty under 269SS or 269ST (he was the payer, not the acceptor/receiver). However, ₹5,50,000 in cash outflows now appear in his AIS. If he cannot explain the source, Sections 68 or 69 of the Act become relevant.

The fix: Both advances should have been NEFT or RTGS. No token advance in a property transaction is "too small" to require digital mode.

Worked Example 2: How a Trader's Cash Ledger Triggers 40A(3)

Scenario: Rajiv runs a wholesale grocery business in Jaipur. In April 2026 he makes these cash payments to one supplier, Sharma Traders:

Analysis:

• 3 April: ₹8,000 + ₹4,500 = ₹12,500 to the same supplier in one day → exceeds ₹10,000 → ₹12,500 fully disallowed
• 10 April: ₹11,000 single payment → exceeds ₹10,000 → ₹11,000 disallowed
• 17 April: ₹9,500 → within limit → allowed

Total disallowance for April: ₹23,500. At an effective tax rate of 30% (including surcharge and health and education cess), Rajiv pays approximately ₹7,050 in additional tax on ₹23,500 that he actually spent. Replicate this pattern monthly and the annual additional tax exposure runs into lakhs.

The fix: Open a current account for the business. Pay Sharma Traders by UPI or NEFT for each delivery, regardless of how small.

How AIS and SFT Have Changed Enforcement

The Annual Information Statement (AIS) — accessible through incometax.gov.in → Services → Annual Information Statement — pulls data from banks, registrars, mutual funds, brokers, and dozens of other reporting entities. For cash-intensive taxpayers, the practically important SFT thresholds are:

• SFT-001: Cash deposits in savings accounts ≥ ₹10 lakh in a financial year (reported by banks)
• SFT-002: Cash deposits in current or cash-credit accounts ≥ ₹50 lakh in a year
• SFT-003: Cash purchase of bank drafts or pay orders ≥ ₹10 lakh in a year
• SFT-011: Cash purchase of foreign currency ≥ ₹10 lakh in a year
• SFT-012 equivalent: Cash component of immovable property consideration, reported by sub-registrars

The Tax Information Summary (TIS) — the deduplicated, processed layer of AIS — computes a "derived value" that the department expects you to reconcile in your ITR. A ₹12 lakh cash deposit in a savings account matched against an ITR showing ₹8 lakh gross receipts is a mathematical red flag that the Centralised Processing Centre will flag automatically during AY 2027-28 processing.

What to do every quarter:

1. Log in to incometax.gov.in and download your AIS (PDF or JSON).
2. Match every SFT entry against your books — cash deposits, large receipts, property transactions.
3. If any entry is wrong (duplicated, belongs to someone else, incorrect amount), file an online feedback on the AIS portal. The feedback is time-stamped and creates a record that you contested the figure before filing your ITR.
4. Resolve mismatches before 31 March 2027 so your ITR for FY 2026-27 does not need to be revised after filing.

Sector-Specific Cash Risks: Where Violations Cluster

Real estate: The "specified sum" amendment to Section 269SS means that every rupee of a cash booking advance — before any agreement to sell is even signed — is covered. Builders who collect ₹25,000 in cash at a project launch event and issue a hand-written receipt are violating 269SS and 271D is the consequence.

Jewellery: Cash sales above ₹2 lakh from a single buyer in a day trigger Section 269ST on the jeweller. PAN or Form 60 collection is mandatory for cash transactions above ₹2 lakh. SFT reporting is required from jewellers for cash receipts above this threshold.

Hospitals and educational institutions: A hospital collecting a ₹2,20,000 surgery deposit in cash from one family triggers 269ST on the hospital. An educational institution collecting an annual fee of ₹2,50,000 in a single cash instalment from a parent similarly violates 269ST — the "single transaction" limb captures it even if it is spread over two separate receipts on the same day.

NGOs and charitable trusts: Donations exceeding ₹2,000 per donor per year in cash are not eligible for deduction under Section 80G in the donor's hands. For the trust, a cash donation of ₹2,50,000 from one donor at a fundraising event triggers Section 269ST and may invite examination of the trust's Section 11 exemption.

Pitfalls to Avoid: Common Mistakes and How to Fix Them

1. Name-splitting to stay under ₹2 lakh Routing ₹1,00,000 cash through a spouse and ₹1,00,000 through a sibling on the same day for the same transaction does not defeat Section 269ST. The department aggregates receipts by beneficial source when there is a common underlying purpose. Do not rely on name-splitting.

2. Treating all intra-family loans as exempt from 269SS There is no blanket relative exemption. Only the agricultural income carve-out applies. A parent lending a child ₹50,000 in cash — even if informal and interest-free — attracts 271D on the child who accepted it.

3. Paying the same supplier ₹9,500 each day to stay safe If you pay ₹9,500 for a morning delivery and ₹1,200 for an afternoon delivery to the same supplier on the same day, the aggregate is ₹10,700 — entirely disallowed under Section 40A(3). The fix is a single bank transfer for both deliveries.

4. Ignoring 40A(3A) on accrued but unpaid expenses If your March 2026 books show a ₹20,000 accrued freight expense and you pay it in cash in August 2026, Section 40A(3A) taxes the ₹20,000 as income in FY 2026-27. Track all accrued-but-unpaid expenses at year-end and pay them digitally at the point of payment.

5. Omitting violations from Form 3CD Tax auditors must report cash limit violations in Form 3CD — Clause 31(ba) for 269ST, Clause 31(bb) for 269SS, Clause 31(bc) for 269T, and Clause 21(d) for 40A(3) disallowances. Each clause requires the counterparty's name, address, and amount. If a violation occurred, disclose it. Non-disclosure on a known violation exposes both the taxpayer and the auditor to professional consequences beyond the base penalty.

Key Takeaways

• Section 269SS bars cash acceptance of loans, deposits, and property advances of ₹20,000 or more; the 100% penalty under Section 271D falls on the acceptor, not the payer.
• Section 269ST bars cash receipts of ₹2 lakh or more from one person in a day or for one event or transaction; the 100% penalty under Section 271DA falls on the receiver.
• Section 269T bars cash repayment of any loan or deposit where the outstanding balance (principal + interest) is ₹20,000 or more; the 100% penalty under Section 271E falls on the repayer.
• Section 40A(3) fully disallows cash business payments exceeding ₹10,000 per person per day (₹35,000 for transporters); prior-year accruals paid in cash in a later year are reversed under Section 40A(3A).
• AIS and SFT data make large cash transactions visible to the department automatically — reconcile your AIS every quarter and file feedback on any incorrect entry before filing your ITR for FY 2026-27.
• There is no general exemption for relatives or friends under Section 269SS or 269T; only the agricultural income carve-out applies.
• Default digital for any transaction above ₹10,000; for anything above ₹2 lakh, digital is non-negotiable regardless of your relationship with the counterparty or the urgency of the transaction.