Cash Transactions under IT Act

India's Income Tax Act imposes strict cash limits. Section 269SS prohibits accepting cash loans or deposits of ₹20,000 or more; Section 269ST prohibits receipt of ₹2 lakh or more in aggregate from one person in a day, single transaction, or one event; Section 269T prohibits cash repayment of loans of ₹20,000 or more; Section 40A(3) disallows business cash expenditure above ₹10,000 (₹35,000 for transporters) to one person in a day. Violations attract 100% penalty under Sections 271D, 271DA and 271E.

Mayank Wadhera

Published: 1 Sept 2023

Updated: 16 May 2026

4 min read

Cash continues to be the most monitored mode of payment under India's Income Tax Act, 1961. While digital payments dominate B2B and increasingly B2C flows, cash retains a meaningful share in real estate, gold, retail and informal services. For FY 2026-27, every taxpayer needs a working knowledge of the cash limits embedded in Sections 269SS, 269ST, 269T, 40A(3) and 43B.

The headline limits to remember

Section 269SS: No person shall accept a loan, deposit or specified sum of ₹20,000 or more in cash; mode must be account payee cheque, draft, ECS, UPI, IMPS, RTGS, NEFT or other prescribed electronic mode.
Section 269ST: No person shall receive ₹2 lakh or more in aggregate from a person in a day, or for a single transaction, or for transactions relating to one event or occasion, in cash.
Section 269T: No person shall repay a loan or deposit of ₹20,000 or more in cash.
Section 40A(3): Cash expenditure exceeding ₹10,000 to a single person in a day is disallowed as business expenditure (₹35,000 for transporters).
Section 43B: Statutory dues must be actually paid (not merely accrued) for deduction — cash payments must respect the underlying caps.

Penalty exposure

Violations of Sections 269SS and 269T attract penalty equal to 100% of the amount under Sections 271D and 271E respectively. Violations of Section 269ST attract penalty under Section 271DA at 100% of the receipt. Section 40A(3) leads to disallowance of the entire expenditure. The penalties are levied on the recipient (269SS), repayer (269T), and the receiver of ₹2 lakh-plus (269ST) — not necessarily the payer. Understanding who bears the penalty is critical when structuring transactions.

Common business scenarios

Sale of immovable property: full consideration above ₹2 lakh must be received non-cash to avoid Section 269ST.
Loan from a relative: even genuine intra-family loans of ₹20,000 or more must be by banking channel.
Wedding receipts (gifts in cash): aggregate from one person in connection with the event triggers 269ST if it crosses ₹2 lakh.
Trade discounts and incentives: cash incentives above ₹2 lakh in a day from one buyer are caught by 269ST.

Reporting obligations

Tax auditors are required to report Section 269SS, 269ST, 269T and 40A(3) violations in Form 3CD. Banks and financial institutions report cash deposits aggregating to ₹10 lakh or more in savings accounts (₹50 lakh for current accounts) under the Statement of Financial Transactions framework. The Annual Information Statement (AIS) flags large cash transactions to the taxpayer's e-filing account, making it harder to leave cash unexplained.

How AIS and SFT amplify enforcement

The Annual Information Statement, accessible to every taxpayer through the income tax e-filing portal, now aggregates information from banks, registrars, dealers, mutual funds, and other reporting entities. Cash deposits, large property purchases, and high-value receipts surface in the AIS — and any mismatch with the ITR draws scrutiny. The Statement of Financial Transactions (SFT) requires reporting entities to file specified high-value transactions annually, including cash deposits aggregating to ₹10 lakh or more in savings accounts. For taxpayers, the practical implication is that cash transactions above the prescribed thresholds are no longer invisible to the tax department. Reconciling AIS with the books at the end of each quarter is now a basic hygiene step, especially for businesses with retail cash flow.

Sector-specific cash issues to watch

Specific sectors have heightened cash sensitivity. Real estate transactions above ₹20,000 in cash for sale consideration are caught by Section 269SS specifically when treated as advance for transfer of immovable property. Jewellery purchases above ₹2 lakh attract Section 269ST regardless of cash deposit thresholds. Medical and educational institutions accepting fees in cash above the cap attract reporting under the Statement of Financial Transactions. NGOs and trusts receiving cash donations above the prescribed limit lose exemption benefits and may attract additional disclosure. Each sector should map its typical cash flow against the cash limit architecture and design SOPs that default to digital — both to comply with law and to maintain a clean audit trail.

Conclusion

Cash is not banned, but cash is watched. In FY 2026-27, the simplest rule is to default to digital — UPI, IMPS or NEFT — for any transaction above ₹10,000, and absolutely for any aggregate above ₹2 lakh from the same person. Cash discipline today saves penalty exposure and assessment trouble tomorrow, especially given that AIS and Form 26AS now reconcile cash flows with disarming precision.

Frequently Asked Questions

What is the cash receipt limit under Section 269ST?

Section 269ST prohibits any person from receiving ₹2 lakh or more in cash from a single person in a day, for a single transaction, or for transactions relating to one event or occasion. Receipts must be by account payee cheque, draft, ECS or other prescribed electronic mode. Violation attracts a 100% penalty under Section 271DA.

Can I take a cash loan from a relative?

No. Section 269SS prohibits accepting any loan or deposit of ₹20,000 or more in cash, even from a relative. The mode must be account payee cheque, draft, or specified electronic transfer. Violation attracts a penalty equal to the amount of the loan under Section 271D, levied on the person who accepted the cash.

What is the cash expenditure limit for businesses?

Under Section 40A(3), business expenditure exceeding ₹10,000 in cash to a single person in a single day is disallowed as a deduction. For payments to transporters, the limit is ₹35,000. The disallowance applies to the entire expenditure, not just the excess over the limit.

Are agricultural transactions exempt from these rules?

Sections 269SS and 269T contain limited exceptions for transactions between persons having agricultural income and no other taxable income. However, Section 269ST has no agricultural exemption. Form 3CD reporting and AIS tracking apply universally, so any cash receipt of ₹2 lakh or more must be carefully documented.