Cash Transaction Rules Under Income Tax Act 1961

Last Updated on February 10, 2026

Cash transactions mean payments or receipts made in physical currency rather than using bank transactions. To increase transparency and effectively stop the proliferation of black money, the Income Tax Act 1961 has set strict limits on high amounts of cash transactions. The act has set several restrictions on large amounts of cash loans, receipts, repayments, expenditure, and withdrawals, which help to increase accountability in society by moving towards traceable financial transactions.

What is Section 269ST of the Income Tax Act 1961?

1. Purpose:

The basic intent behind Section 269ST is to eliminate black money and promote virtual transactions by disallowing the receipt of large amounts in cash, and that an individual cannot accept more than ₹2,00,000 in cash.

• From one person in one day, OR
• For a Single Transaction: OR
• For transactions related to a single event/occasion from one individual.

2. Applicability:

• This rule applies to individuals, businesses, firms, companies, and all other entities.
• It includes business and personal dealings.
• Example: Accepting ₹2,50,000 in cash while selling goods amounts to contravention of Section 269ST. Accepting an amount of ₹1,50,000 + ₹60,000 cash on the same day from the same person is not allowed.

3. Mode of Receipt:

• The money should be sent through account payee cheques, bank drafts, or electronic modes such as UPI, NEFT, etc.
• A penalty equivalent to the received amount will be imposed for the violation.

Applicability of Section 269ST of the Income Tax Act 1961

1. The applicability of such regulation extends to all individuals, Hindu Undivided Families (HUFs), partnerships, businesses, Limited Liability Partnerships (LLPs), Associations of Persons (AOPs), Bodies of Individuals (BOIs), and trusts.

2. It is applicable in business and personal dealings, not restricted to business-to-business dealings.

3. The rule is applicable if the person receives ₹2,000.00 or more in cash. This may happen through:

• one person in one day, OR
• For a single transaction, OR.
• For transactions related to a single event or occasion from an individual.

4. The rules apply irrespective of the tax status of the recipient.

5. It includes all sales, including those of goods, services, properties, advances, and loans, except those protected under Sections 269SS and 269T.

6. It does not include receipts from government entities, financial institutions, post offices, cooperative banks, and individuals recognized by the government.

7. It does not refer to or include any transactions that are already covered under Section 269SS.

Section 269ST of the Income Tax Act 1961 – Exceptions

1. Government receipts: Cash receipts from Central, State or Local Authorities.
2. This section does not include transactions carried out by banking companies.
3. In the case of the Post Office Savings Bank, receipts from post offices are exempted.
4. Section 269ST is not applicable to receipts issued by co-operative banks.
5. Section 269ST excludes cash loans and cash deposits that have been provided under Section 269SS.
6. The Central Government possesses the authority to specify certain individuals, receipts, or transactions as exempt.
7. Certain government schemes or institutions may be exempted from certain requirements.

Cash Transaction Rules Under the Income Tax Act 1961

There are stringent restrictions prescribed by the Act with regard to large cash transactions through various provisions such as Section 269SS, 269T, 269ST, and 40A(3).

1. Section 269SS – Limitations on the Acceptance of Cash Loans and Deposits

The limit of transactions that can be made in cash shall not exceed ₹20,000. The transactions must be made through:

• Cheque in favour of the account payee.
• Bank draft in favour of the account payee.
• Electronic clearance system (ECS).
• Designated electronic systems.

The conditions under which it shall be imposed:

• The loans and deposits amount to ₹20,000 or more.
• The cumulative aggregate amount from a single individual is ₹20,000 or more.
• In cases of transfer of immovable property, the advance received shall apply.
• Value of cash accepted in loans and deposits shall be imposed as a penalty under Section 271D.

2. Section 269T – Restrictions on Loan/Deposit Repayment in Cash

Payments of cash loans or deposits in excess of ₹20,000 are prohibited. Repayments have to be made through banking channels or approved electronic systems. This regulation shall apply if:

• The total amount with interest is more than ₹20,000.
• The penalty prescribed under Section 271E equals the amount paid in cash.

3. Section 269ST – Restriction on Cash Receipts

No person shall receive more than ₹2,00,000 in cash:

• From a single individual within a single day, OR
• For a single transaction, OR
• For transactions related to a particular event or occasion by an individual.

This includes commercial as well as personal deals.

Penalty (Section 271DA): Equivalent to the amount received in violation.

4. Section 40A(3) – Cash Expenditure Disallowance

• Exceeding ₹10,000 cash payment to individuals in a day would lead to the disallowance of such expenses.
• The limit for transport operators is capped at ₹35,000.
• These expenditures are not deductible from the business income.
• This regulation encourages digital and banking transactions.

5. Section 43 – Cash Payment for Capital Expenditure

If the cost incurred in acquiring the asset is more than ₹10,000 in cash:

• Amounts in excess of ₹10,000 are ignored in determining actual cost.
• It lessens the benefits received from depreciation.

6. Section 80G – Cash Donation Limit

• Cash contributions in excess of ₹2,000 cannot claim tax relief.
• Section 80G deductions involve non-cash transactions.

7. Section 194N -TDS on Cash Withdrawals

TDS applies to cash withdrawals made through banks. If cash withdrawals exceed the following thresholds:

• TDS at 2% on ₹1 crore for each financial year.
• Those who have not filed ITR have to pay TDS on the amount exceeding ₹20 lakh at 2% or 5%.

This measure is intended to deter large withdrawals of money.

8. Rule 6DD: Exceptions to Section 40A

Cash payments are permissible under certain circumstances that include:

• Payments to the government.
• Payments are made without any involvement of a financial institution.
• Payments made during bank holidays.
• Payments for farmers, producers, and small businesses.
• Other legitimate business emergencies.

9. Cash Transaction Reporting (SFT Reporting)

Banks and all other financial institutions should report the following:

• Cash deposits in excess of ₹ 10 lakh in savings bank accounts.
• Cash deposits in current accounts that are over ₹50 lakhs.
• These transactions are reported under the Statement of Financial Transactions (SFT).

Case Illustration / Example

Running a Mumbai furniture store falls on Mr. Raj. Mr. Raj was paid ₹2.5 million in cash from a client for buying expensive pieces of furniture in this setting. An individual can only give ₹2,00,000 to a firm, hence this contravenes Section 269ST. Under Section 271DA, Mr. Raj could face a fine of ₹2,50,000.

Moreover, Mr. Raj accepted a financial loan of ₹50,000 from his friend to help him expand his business. By allowing parties to take cash loans exceeding ₹ 20,000, this ruling went against Section 269SS. The fine levied under Section 271D might top ₹50,000.

Furthermore, he made a cash payment of Rs 25,000 to a supplier within only a day. Section 40A(3) states that any payment made in cash for above ₹10,000 will not be considered in calculating taxable income.

The aforementioned case emphasises all the restrictions guiding the limit of cash transactions, with particular attention on raising openness and stopping tax evasion.

Consequences of Non-Compliance

Non-compliance with income tax rules relating to cash transactions would result in severe monetary sanctions and tax implications.

Sections 269SS, 269T, and 269ST prescribe that the penalty could be the same as the amount of cash received or refunded in contravention of these regulations.

In addition, under Section 40A(3), a higher amount of cash expenditure can be ignored, which in turn can increase income tax liability.

Cash withdrawal in excess may attract TDS under Section 194N. Even repeated violations may lead to inspection, assessment, and prosecution in serious cases.

Frequently Asked Questions (FAQ)

1. How much cash could one obtain at maximum?

Receiving more than ₹2,00,000 in cash is against Section 269ST.

2. Could it be suitable to take a cash loan of ₹50,000?

Section 269SS addresses cash loans or deposits beyond ₹20,000.

3. What is the limit of a 20 lakh cash transaction?

Under Section 194N, the threshold of ₹20 lakh principally relates to cash withdrawal; TDS applies when a person without an ITR file withdraws an amount over ₹20 lakh in cash from a bank or post office during a fiscal year.

4. What is the new law about cash transactions?

Similarly, the ban on surpassing ₹2 lakh in a single day, transaction, or event covered under Section 269ST calls for a fine of the value of the cash receipts.

5. What is the Supreme Court judgement on cash transactions?

The Supreme Court found that sanctions for large-value loans and cash repayment were appropriate measures to combat black money and tax evasion, and therefore affirmed the constitutionality of Sections 269SS and 269T.

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