Cash Transaction Limits Under Income Tax - Sections 269ST, 269SS, 269T and the 100% Penalties Most People Never See Coming (AY 2026-27)

Most tax penalties in India are proportionate. File late and you pay Rs 1,000 or Rs 5,000. Under-report income and you pay 50% of the tax on it.

The cash transaction penalties are different. Break Section 269ST and the penalty is 100% of the amount you received. Not 100% of the tax on it. The whole amount.

Accept Rs 3 lakh in cash for a used car, and the penalty is Rs 3 lakh, on top of any tax you owe on the underlying income. These provisions exist to squeeze cash out of high-value dealings, and because they attach to receipts rather than to income, they catch ordinary people who never thought of themselves as tax evaders: someone selling a flat, taking a loan from a brother-in-law, or collecting cash gifts at a wedding.

This guide covers every cash restriction that applies to an individual taxpayer for AY 2026-27 (FY 2025-26), the thresholds, who gets penalised, and the exceptions that actually work.

First, the Rule That Does Not Exist

There is no limit on how much cash you can hold at home or carry with you under the Income Tax Act.

This myth circulates every year, usually with an invented figure of Rs 2 lakh or Rs 5 lakh. What the law actually requires is that you can explain the source of the cash if asked.

Cash that cannot be explained is taxed under Section 115BBE at 60% plus a 25% surcharge on that tax plus 4% cess, which works out to 78%, with no deduction, no exemption and no set-off of losses permitted against it. If it was not disclosed in your return, Section 271AAC adds a further penalty of 10% of the tax.

So the real risk is not possession. It is documentation.

Section 269ST: The Rs 2 Lakh Receiving Limit

Section 269ST is the broadest and most misunderstood of the cash provisions.

No person may receive Rs 2,00,000 or more in cash:

1. from one person in a single day, in aggregate across all transactions, or
2. in respect of a single transaction, even if split across several days, or
3. in respect of transactions relating to one event or occasion from one person.

All three limbs operate independently. Satisfying one is enough to trigger the penalty.

The threshold is "Rs 2,00,000 or more", so a receipt of exactly Rs 2,00,000 breaches it. Rs 1,99,999 does not.

The penalty falls on the receiver

This is the part almost everyone gets backwards. Section 271DA imposes a penalty equal to the amount received on the person who accepted the cash, not the person who paid it.

The seller, the landlord, the jeweller, the hospital, the relative accepting a loan repayment - they carry the liability. The penalty is levied by a Joint Commissioner and can be waived only if you prove there were "good and sufficient reasons" for the contravention.

How the three limbs play out

Limb 1 - one person, one day. Ramesh sells furniture to a buyer who pays Rs 90,000 in the morning and Rs 1,20,000 in the afternoon on the same day. Two separate bills, one day, one person, Rs 2,10,000 in aggregate. Section 269ST is breached and Ramesh faces a Rs 2,10,000 penalty.

Limb 2 - one transaction, split across days. A car is sold for Rs 4,50,000. The buyer pays Rs 1,50,000 in cash on three different dates across two months. No single day crosses Rs 2 lakh, but it is a single transaction of Rs 4,50,000. Breached. Splitting a transaction does not save you.

Limb 3 - one event or occasion. A caterer bills Rs 3,80,000 for a wedding across four invoices and accepts cash for all of them from the bride's father over several weeks. All four relate to one occasion and one person. Breached.

The wedding case has a second trap. Gifts received on the occasion of your own marriage are fully exempt from income tax under Section 56(2)(x), from relatives and non-relatives alike. But exemption from income tax is not an exemption from Section 269ST. If a single guest hands over Rs 2,50,000 in cash, the receipt itself is a contravention even though the gift is tax-free. Cheque or bank transfer for large wedding gifts, always.

Exceptions that genuinely apply

Section 269ST does not apply to receipts from:

• the Government
• any banking company, post office savings bank or co-operative bank
• transactions already covered by Section 269SS (loans and deposits, discussed below)
• persons or receipts specifically notified by the Central Government

Withdrawing your own money from your own bank account is not a Section 269ST receipt. The CBDT clarified this specifically.

Sections 269SS and 269T: The Rs 20,000 Loan Rule

These two sections deal with loans and deposits, and the threshold is far lower.

Section 269SS prohibits accepting a loan, deposit, or "specified sum" of Rs 20,000 or more other than by account payee cheque, account payee draft, ECS, or a prescribed electronic mode (UPI, NEFT, RTGS, IMPS, debit card, BHIM).

Section 269T prohibits repaying the same, in cash, at the same Rs 20,000 threshold.

Three details do most of the damage:

The threshold aggregates with what is already outstanding. If you already owe a friend Rs 15,000 and accept another Rs 8,000 in cash, the aggregate is Rs 23,000 and Section 269SS is breached, even though neither individual amount crosses Rs 20,000.

"Specified sum" covers property advances. Any advance received in relation to the transfer of immovable property is caught, whether or not the sale ever completes. Accepting a Rs 50,000 cash token amount on a flat sale is a Section 269SS contravention with a Rs 50,000 penalty attached, and it is a very common one.

Family is not exempt. Loans between a father and son, or between siblings, are still loans. The genuineness of the transaction and the fact that both parties are assessed to tax may be argued as "reasonable cause" under Section 273B, and tribunals have accepted this in some cases, but it is a defence you have to run, not an exemption you can rely on. The narrow statutory carve-out is where both parties have only agricultural income and neither has any taxable income.

Section 40A(3): The Rs 10,000 Business Payment Limit

If you have business or professional income - freelancing, consulting, a shop, a clinic - Section 40A(3) applies to what you pay.

Any expenditure paid in excess of Rs 10,000 to a single person in a single day in cash is fully disallowed as a deduction. Not partially. The entire payment.

The limit rises to Rs 35,000 for payments made to a transporter for plying, hiring or leasing goods carriages.

The penalty here is economic rather than a separate fine: you lose the deduction, so your taxable profit rises by the full amount.

A related trap sits in the proviso to Section 43(1). If you buy a business asset and pay more than Rs 10,000 in cash in a day, that payment is excluded from the asset's actual cost. No cost means no depreciation, ever, on that portion.

Section 40A(3A) closes the loop from the other side: if you claimed a deduction in an earlier year on an outstanding liability and then settle it in cash above the limit, the amount is treated as your income in the year of payment.

Filing under presumptive taxation sidesteps this entirely, since profit is computed as a percentage of turnover and individual expense disallowances never arise.

Cash Rules Hidden Inside the Deductions

Several deductions have their own cash bars, and these are the ones that most often surface as a rejected claim rather than a penalty notice. All of them apply under the old regime, where these deductions are available.

Note the asymmetry in Section 80D. Paying a Rs 28,000 family floater premium in cash to an agent means the entire deduction is lost, while a Rs 4,000 cash payment for a preventive health check-up is fine. Our Section 80D deduction guide covers the full limit structure.

Section 80C, by contrast, has no cash bar. Tuition fees, life insurance premiums and PPF contributions paid in cash remain eligible, though you still need receipts.

Section 194N: TDS When You Withdraw Cash

The department also taxes cash at the point of withdrawal.

Under Section 194N, banks, co-operative banks and post offices deduct TDS on aggregate cash withdrawals during a financial year:

• 2% on withdrawals above Rs 1 crore in the year (Rs 3 crore for co-operative societies)
• For someone who has not filed ITR for the preceding relevant years: 2% on withdrawals above Rs 20 lakh, rising to 5% above Rs 1 crore

This is not a tax on the withdrawal itself. It is fully creditable against your final liability and refundable if you have none, so it appears in your Form 26AS and must be claimed in your return. The higher non-filer rate exists purely to make large cash withdrawals expensive for people outside the return-filing system.

Quick Reference: Every Threshold in One Place

Where This Actually Shows Up

Most people never receive a Section 271DA notice directly. The exposure arrives sideways, through data the department already holds.

Cash deposits above Rs 10 lakh in savings accounts in a year, cash purchases of drafts above Rs 10 lakh, and credit card bills paid in cash above Rs 1 lakh are all reported through the Statement of Financial Transactions and land in your AIS. A property registration document showing a cash component does the same. Our guide to high-value transactions and SFT reporting covers what gets reported and when.

Once a large cash deposit sits in your AIS without a matching explanation in your return, the assessing officer works backwards to the transaction that generated it - and that is where Section 269ST surfaces.

When you file with 49Tax, AIS entries are read alongside your Form 16 and bank data, so cash deposits and Section 194N TDS entries are surfaced against your declared income rather than discovered later by an officer.

The Practical Takeaway

You do not need to memorise six sections. Three habits cover almost all of the risk for an individual taxpayer:

1. Never accept Rs 2 lakh or more in cash from one person, for anything, on any timeline. Not for a car, a flat, a wedding gift, or a settlement.
2. Route every loan, deposit and property advance of Rs 20,000 or more through a bank, including within the family. Same for repayment.
3. If you have business income, keep every single cash payment under Rs 10,000 per person per day, and pay for capital assets by bank transfer without exception.

The asymmetry is the point worth remembering: the person who pays cash usually loses a deduction, while the person who receives it loses the entire amount. If you are on the receiving end of a large transaction, insist on the bank transfer - the convenience of cash is never worth a 100% penalty.