Restrictions on Deposits & Advances

Restrictions on Deposits & Advances

Sections 269SS, 269T and 269ST of the Income-tax Act, 1961 collectively ban cash loans, deposits and large cash receipts beyond prescribed thresholds — ₹20,000 for loans/deposits and ₹2 lakh for general cash receipts. Violate any one of these provisions and the penalty equals 100% of the amount transacted, with no deduction for tax already paid. With the Union Budget 2026 tightening data-sharing between banks and CBDT and expanding the scope of Section 269ST, these rules demand practical, day-to-day attention from every founder, CFO, professional and HNI in India.

Why These Provisions Have Become an Enforcement Priority in FY 2026-27

Cash-restriction enforcement has historically been episodic — triggered by surveys or specific intelligence. That is changing. From FY 2026-27 onward, the Central Board of Direct Taxes (CBDT) has widened the data pipeline from banks, payment aggregators and registrars to its Annual Information Statement (AIS) and Tax Information Summary (TIS). Any large cash deposit, property registration or high-value transaction that does not trace back to a banking channel now flags automatically in the AIS of both payer and recipient.

The penalty provisions — Sections 271D, 271E and 271DA — are not assessed by your Assessing Officer (AO) as part of your normal scrutiny assessment. They are levied independently by the Joint Commissioner of Income Tax (JCIT), which means a separate notice, a separate hearing and a separate demand. You can face a 100% penalty even in a year where your income tax liability is nil. That asymmetry is what makes these provisions dangerous for businesses that consider cash transactions a routine convenience.

Section 269SS: The ₹20,000 Ceiling on Accepting Cash Loans and Deposits

What the Section Prohibits

Section 269SS bars any person — individual, HUF, firm, LLP, company or trust — from accepting a loan, deposit or specified sum of ₹20,000 or more in cash. Permitted modes are:

• Account-payee cheque
• Account-payee bank draft
• Electronic Clearing Service (ECS)
• Any other electronic mode: UPI, IMPS, NEFT, RTGS

"Any other electronic mode" captures modern payment rails, so a BHIM UPI transfer is compliant. A bearer cheque is not — it is not an account-payee instrument and does not satisfy the section.

The ₹20,000 Threshold Is an Aggregate, Not Per-Transaction

The threshold applies to the total amount outstanding or payable to or by a single person. If you have already taken a ₹15,000 cash loan from Mr. Ramesh and now accept another ₹10,000 cash from him, the combined balance is ₹25,000 — the entire amount is tainted and the penalty applies to the incremental acceptance of ₹10,000 (or potentially the full ₹25,000 if treated as a fresh loan at ₹25,000). Courts have taken varying views, but conservative practice treats every fresh acceptance that breaches or is already above ₹20,000 as a violation.

The "Specified Sum" Trap in Property Transactions

Section 269SS also covers a specified sum: any amount receivable — whether called earnest money, token money, booking advance or otherwise — in relation to a transfer of immovable property, even if the transfer never ultimately takes place. This catches a very common practice: accepting ₹30,000 cash as token money for a flat sale. The seller who takes the cash has violated 269SS. The fact that the property eventually sold via registered deed does not cure the violation.

Who Is Exempt from Section 269SS?

The following entities can accept cash loans/deposits without attracting Section 269SS:

• Central or State Government bodies
• Banking companies (as defined in the Banking Regulation Act, 1949)
• Co-operative banks
• Post offices
• Corporations established under Central or State Acts
• Government companies under the Companies Act, 2013
• Any other class notified by the Central Government

If you run a private limited company or a partnership firm, you are not exempt. Agricultural income earners dealing in agricultural produce may have limited protection under the proviso, but only in specific notified circumstances.

Section 269T: Repayment Rules Are as Strict as the Acceptance Rules

Section 269T is the mirror of 269SS: it applies on the repayment side. No person can repay a loan or deposit, or any specified advance received in connection with a property transfer, of ₹20,000 or more in cash.

What Counts Toward the ₹20,000 Aggregate for Repayment

The aggregate for Section 269T includes:

1. The principal outstanding at the time of repayment
2. Interest accrued on the loan or deposit

This is a frequently missed detail. If you borrowed ₹18,000 in a compliant manner (via cheque) and the interest has accumulated to ₹3,000, the total payable is ₹21,000. Repaying this in cash — even though the original loan was taken correctly — violates Section 269T, and the penalty is ₹21,000.

A Common Misconception About Old Loans

Some business owners believe that loans taken before a certain year, or loans already on the books, are grandfathered out of 269T. They are not. The restriction applies at the time of repayment, not at the time the loan was taken. If you have an old unsecured loan from a relative recorded in your books and you repay ₹25,000 in cash at any point during FY 2026-27, you violate Section 269T irrespective of when the loan originated.

Section 269ST: The Universal ₹2 Lakh Cap on Cash Receipts

Section 269ST was introduced to tackle black-money circulation at the retail and services level, where 269SS would not apply because the transaction is not a loan or deposit at all. It targets the recipient of cash — not the payer.

Three Independent Triggers

A person cannot receive ₹2,00,000 or more in cash:

1. In aggregate from a single person in a single day — regardless of how many transactions make up that aggregate
2. In respect of a single transaction — a single sale or contract of ₹2 lakh or more, even if spread across multiple payment dates
3. In respect of transactions relating to one event or occasion from a person — all cash received from a single party toward one event (a wedding, a conference, a construction project) is aggregated

Each trigger is independently sufficient to attract the penalty. You do not need to breach all three.

Who Is Exempt and Who Is Not

Exempt:

• Government (Central, State, local authority)
• Banking companies and co-operative banks
• Post offices
• Such persons or class of persons or receipts as may be notified by the Central Government

Not exempt (and actively targeted in enforcement):

• Jewellers
• Real estate developers and brokers
• Event venues and wedding planners
• Private hospitals and clinics
• Educational institutions (private)
• Retailers and traders of high-value goods
• Professionals receiving fees in cash

The "Event or Occasion" Rule Unpacked

This third trigger is the most litigated. Suppose a caterer for a wedding receives cash payments of ₹80,000, ₹70,000 and ₹60,000 from the same family over three different weeks for the same wedding. The aggregate is ₹2,10,000 — all referable to one occasion. Even though no single day's receipt exceeded ₹2 lakh and no single payment exceeded ₹2 lakh, Section 269ST is violated when the third instalment is received.

The practical lesson: the caterer (or florist, decorator, photographer, venue) must insist on account-payee payment from the very first instalment once it becomes apparent that the total booking value will exceed ₹2 lakh.

The Penalty Mechanism: Sections 271D, 271E and 271DA

Which Section Applies to Which Violation

All three penalties are levied by the Joint Commissioner of Income Tax, through a separate notice and order, independent of your regular income-tax assessment. There is no cap on the penalty and no provision for a reduced penalty based on good conduct or first offence. The penalty is the amount itself — always 100%.

The Reasonable Cause Defence Under Section 273B

Section 273B provides that no penalty shall be levied if the person proves that the default was attributable to a reasonable cause. The burden of proof is entirely on the taxpayer. Tribunals and courts have accepted reasonable cause in cases involving:

• Genuine banking strikes or bank closures on the day of transaction
• Medical emergencies requiring immediate cash disbursement
• Transactions in remote areas with no banking infrastructure

Convenience, urgency of business or the other party's insistence on cash have consistently been rejected as reasonable cause. "He would not accept a cheque" is not a defence — you are equally obligated to refuse the transaction.

Worked Example: One Property Deal, Three Penalty Exposures

Scenario: Mr. Arjun Mehra, a builder, sells a residential flat to Ms. Priya Kapoor for ₹45 lakh. The following cash transactions occur during FY 2026-27:

Transaction 1 — Token money: Ms. Kapoor pays Mr. Mehra ₹3,00,000 cash as token money on 12 June 2026.

• Mr. Mehra's exposure (Section 269SS): He accepted a specified sum (token money for immovable property) of ₹3,00,000 in cash → Penalty under Section 271D = ₹3,00,000
• Mr. Mehra's exposure (Section 269ST): He received ₹3,00,000 cash in a single transaction → Penalty under Section 271DA = ₹3,00,000

Note: Both 271D and 271DA can be levied on the same transaction where both 269SS and 269ST apply. The JCIT has discretion but both are legally leviable.

Transaction 2 — Part payment: On 15 June 2026, Ms. Kapoor's brother, Mr. Raj Kapoor, pays Mr. Mehra ₹80,000 cash on the same day. That same day, Ms. Kapoor herself pays another ₹1,30,000 cash. Total cash from Ms. Kapoor on 15 June = ₹1,30,000. Cash from Mr. Raj Kapoor = ₹80,000. These are different persons, so there is no day-aggregate breach under 269ST on 15 June.

However, all three instalments (₹3,00,000 + ₹1,30,000 + ₹80,000 from the Kapoor family) relate to one transaction — the flat sale. If the JCIT takes the view that Mr. Raj Kapoor's ₹80,000 also relates to the same sale, the aggregate from both parties relating to one transaction is ₹4,10,000 → further penalty exposure under 271DA.

Transaction 3 — Loan repayment: Mr. Mehra had earlier borrowed ₹25,000 from his co-promoter and repays it in cash on 30 September 2026, along with ₹2,500 interest. Total repaid = ₹27,500 → Penalty under Section 271E = ₹27,500

Total minimum penalty exposure in this deal: ₹3,00,000 (271D) + ₹3,00,000 (271DA) + ₹27,500 (271E) = ₹6,27,500 — on a transaction where the tax on profit may be far lower.

Common Mistakes That Trigger a 100% Penalty

1. Treating petty cash as safe below ₹2 lakh per day: Many businesses allow the cashier to accept ₹1,90,000 from a customer in the morning and then another ₹20,000 from the same customer in the afternoon. The day's aggregate = ₹2,10,000 → 269ST violated. Your billing software's daily cash-receipt control must apply per-customer, not just per-invoice.

2. Cash repayment of old inter-company or inter-family loans: Founders frequently repay informal loans from parents or siblings in cash, reasoning that the original loan was "above board." The repayment mode controls 269T compliance — the origin of the loan does not.

3. Bearer cheques as a workaround: A bearer cheque is encashable by anyone and is not an "account-payee" instrument. Accepting or paying via bearer cheque does not satisfy Sections 269SS or 269T. Only crossed, account-payee cheques and drafts comply.

4. Overlooking interest in the ₹20,000 aggregate: As noted above, interest accrued is added to principal for both 269SS acceptance and 269T repayment aggregation. A loan plus interest crossing ₹20,000 requires a banking channel for every fresh acceptance or repayment.

5. Event businesses collecting "balance cash on the day": Wedding venues, caterers and photographers often collect the bulk of the booking fee digitally but accept the final balance — sometimes ₹50,000 to ₹2 lakh — in cash on the event day. If the total cash from that client for the event exceeds ₹2 lakh, Section 269ST is violated even if each individual cash receipt was below the limit.

6. Not recording PAN of payer in property transactions: Even where a transaction is correctly routed through banking, failure to record the payer's PAN can make the AIS data match harder and invite scrutiny. Section 269SS and 269ST violations often surface during property-related enquiries.

Step-by-Step Compliance Procedure for FY 2026-27

Follow this sequence to build a 269SS/269T/269ST-clean business:

1. Map all cash receipt points. List every location or role that accepts cash: reception desk, field sales, property booking office, cashier. Each is a compliance risk point.

1. Configure accounting and billing software. Set a hard block (or at minimum an alert) for:
2. Single-party cumulative cash receipts exceeding ₹1,80,000 in a day (buffer before ₹2 lakh)
3. Any single cash receipt of ₹18,000 or more toward a loan, deposit or property advance (buffer before ₹20,000)

1. Revise loan and advance templates. All loan agreements, inter-company advances, and security deposit terms must include a clause requiring payment and repayment exclusively via account-payee cheque, NEFT, RTGS, IMPS or UPI.

1. Collect PAN at source. For all property-related token money, booking advances and high-value service contracts, record the payer's PAN before accepting the payment in any mode. This is legally required under Rule 114B for transactions above ₹2 lakh.

1. Reconcile your cash book monthly. Every month before the 5th, review all cash receipts and payments in the prior month. Flag any line item exceeding ₹18,000 from a single party on a single day, any loan repayment in cash, and any property-related cash receipt.

1. Train cashiers and front-office staff. Most 269ST violations happen at the front desk, not in the accounts department. A 30-minute session on "we do not accept cash above ₹1,99,999 from any one customer per day" is more effective than a policy document no one reads.

1. Review AIS/TIS each quarter. Log in to the income tax portal (incometax.gov.in) and check the AIS for your PAN. Large cash deposits or withdrawals reported by banks will appear here. Reconcile these against your books before they become audit triggers.

1. Document any genuine emergencies. If a cash transaction was unavoidable (bank holiday, connectivity failure, medical urgency), document it contemporaneously with a brief note, time-stamped emails or WhatsApp messages, and preserve the documentation. This is your Section 273B file.

Exceptions and Edge Cases Worth Knowing

Loans between agricultural income earners: The proviso to Section 269SS provides limited carve-outs for transactions between persons who derive income only from agriculture and where the transaction is for agricultural purposes. This is narrowly interpreted; confirm the facts carefully before relying on it.

Transactions with banking companies: A banking company receiving cash deposits from the public is exempt from Section 269ST — that is why you can deposit ₹5 lakh in cash at your bank branch. But the business receiving cash from its customers is not a bank and gets no such exemption.

Registered chit funds and NBFCs: These are not banking companies under the Banking Regulation Act and are therefore not exempt from 269SS, 269T or 269ST. Chit fund operators who collect subscriptions in cash above ₹2 lakh per member per occasion are directly in the crosshairs of 271DA.

Government tenders and earnest money deposits (EMDs): Where a government department requires an EMD in cash (increasingly rare), the government body receiving it is exempt. But the contractor is not exempt from the payer-side obligations under 269SS if the deposit is also classified as a loan or specified sum from the contractor's perspective.

Key Takeaways

• Section 269SS prohibits accepting any loan, deposit or immovable-property-related advance of ₹20,000 or more in cash. The threshold is applied on the aggregate balance with a single party, and interest is counted.
• Section 269T mirrors 269SS on the repayment side. Even a loan correctly taken via cheque must be repaid through banking channels if the outstanding principal plus interest is ₹20,000 or more.
• Section 269ST sets a ₹2 lakh ceiling on any cash receipt — from a single person in a day, for a single transaction, or for a single event or occasion — with the "occasion" limb catching instalment-based cash collections from service businesses.
• Penalties under Sections 271D, 271E and 271DA are each equal to 100% of the amount involved, levied by the Joint Commissioner of Income Tax independently of your income tax assessment. Multiple penalties can apply to a single cash transaction.
• Bearer cheques do not comply with 269SS or 269T. Only account-payee cheques, drafts and approved electronic modes satisfy the law.
• The reasonable cause defence (Section 273B) is narrow. Convenience, the other party's preference, or urgency of business do not qualify. Document genuine emergencies in real time.
• AIS/TIS monitoring means cash anomalies are now automatically surfaced to CBDT. Your compliance window is shrinking — build banking-first payment processes before a penalty notice arrives, not after.