Restrictions on Cash Transactions Under Income Tax Laws in India (2026)
India’s Income Tax law has steadily tightened the screws on high-value cash dealings. The goal is to curb black money, widen the tax base and push individuals and businesses toward traceable, digital payments. If you accept a large cash loan, repay a deposit in notes, receive a big cash sum or pay business expenses in cash, you may unknowingly trigger a penalty that can equal 100% of the amount involved. This 2026 guide walks through the key restrictions on cash transactions under the Income-tax Act, 1961, the exact limits, the penalties, and how to stay safely compliant.
Why the law restricts cash transactions
Cash leaves no audit trail. To discourage unaccounted money and tax evasion, the Act prescribes specific ceilings on how much cash you can accept, repay, receive or spend. Cross these limits and the consequence is not merely disallowance of a deduction — in several cases it is a penalty equal to the entire transaction value. Importantly, these rules apply to individuals, professionals, businesses, trusts and charitable institutions alike.
Section 269SS: Cash loans and deposits of Rs 20,000 or more
Section 269SS bars any person from accepting a loan, deposit or “specified sum” of Rs 20,000 or more otherwise than through an account payee cheque, account payee bank draft, electronic clearing system or a prescribed electronic mode.
- The Rs 20,000 threshold applies to a single loan, or to the aggregate of loans/deposits from one person, or when an earlier balance plus the new amount reaches Rs 20,000.
- A “specified sum” includes any advance or money received in relation to the transfer of immovable property, even if the deal does not go through.
- A higher Rs 2 lakh limit applies to members of a Primary Agricultural Credit Society (PACS) or a Primary Co-operative Agricultural and Rural Development Bank.
Section 269T: Cash repayment of loans and deposits
Section 269T is the mirror image of 269SS. It prohibits repaying a loan, deposit or specified advance of Rs 20,000 or more in cash. The repayment must be made through banking channels. This applies to companies, firms, co-operative societies and individuals. Repaying a deposit or a property advance of Rs 20,000 or more in cash exposes the payer to penalty.
Section 269ST: No cash receipt of Rs 2 lakh or more
Introduced to attack large cash dealings across the board, Section 269ST states that no person shall receive Rs 2 lakh or more in cash:
- in aggregate from a single person in a day; or
- in respect of a single transaction; or
- in respect of transactions relating to one event or occasion from a person.
So a wedding caterer, jeweller, hospital or car dealer cannot accept Rs 2 lakh or more in cash from one customer for one event or bill, even if split across several days. The penalty under Section 271DA falls on the receiver, not the payer, and equals the amount received.
Section 40A(3): Business cash expenditure above Rs 10,000
Section 40A(3) disallows business expenditure where a payment exceeding Rs 10,000 is made to a single person in a single day otherwise than through banking or prescribed digital modes. The consequence here is not a penalty but disallowance — the whole expense is denied as a deduction, inflating your taxable profit.
- The limit is raised to Rs 35,000 for payments made for plying, hiring or leasing goods carriages (transport operators).
- The rule also covers capital expenditure under Section 43(1): cash payment above the limit means that portion of cost is ignored for depreciation.
- Rule 6DD carves out limited exceptions, such as payments in villages without banking facilities or on bank holidays.
Section 80G: Cash donations capped at Rs 2,000
If you donate to an eligible charitable institution and want to claim a deduction under Section 80G, any cash donation above Rs 2,000 will not qualify. To claim a deduction for a larger gift, pay by cheque, bank transfer, UPI or card. Donations in kind are not eligible at all. The same Rs 2,000 cash cap applies to contributions under Section 80GGA (scientific research and rural development).
Cash limits in property transactions
Real estate is a common route for unaccounted cash, so multiple provisions apply. Section 269SS treats an advance for transfer of immovable property as a “specified sum”, meaning a seller cannot accept Rs 20,000 or more of such advance in cash. Section 269T similarly restricts cash repayment of such an advance. On a full sale of Rs 2 lakh or more, Section 269ST independently bars receiving the consideration in cash. In short, property money should move only through banking channels.
Penalties at a glance
| Section | Restriction | Cash limit | Penalty / consequence |
|---|---|---|---|
| 269SS | Accepting loan / deposit / property advance | Rs 20,000 or more | 271D — 100% of amount |
| 269T | Repaying loan / deposit / advance | Rs 20,000 or more | 271E — 100% of amount |
| 269ST | Receiving cash (per person/day, transaction or event) | Rs 2 lakh or more | 271DA — 100% of receipt |
| 40A(3) | Business expense in cash | Above Rs 10,000 (Rs 35,000 transport) | Expense disallowed |
| 80G | Donation deduction in cash | Above Rs 2,000 | Deduction denied |
| 269SU | Digital payment facility (turnover above Rs 50 crore) | N/A | 271DB — Rs 5,000 per day |
The penalties under Sections 271D, 271E and 271DA are levied by a Joint Commissioner and can be waived only where the taxpayer shows reasonable cause under Section 273B.
The push toward digital payments
Alongside these restrictions, the law actively rewards going cashless. Section 269SU requires businesses with turnover above Rs 50 crore to offer low-cost digital modes such as UPI, BHIM-UPI and RuPay, with a penalty of Rs 5,000 per day for default. Accepting payment through account payee cheque, NEFT, RTGS, IMPS, UPI or cards keeps you outside the cash net entirely and preserves your deductions. With UPI now embedded in everyday commerce, staying compliant is easier than ever — the safest rule of thumb is to route any significant sum through a bank.
Cash rules are easy to breach by accident, especially around loans between family members, property advances and festive-season receipts. If you are unsure whether a transaction is exposed, a quick review before you file can save a 100% penalty. Our team can help you structure payments correctly and stay compliant while you complete your income tax filing for the year.
Frequently asked questions
Can I take a cash loan of Rs 20,000 from a friend?
No. Under Section 269SS, accepting a loan or deposit of Rs 20,000 or more in cash attracts a penalty under Section 271D equal to the full amount. Take it through a bank transfer or cheque instead. Even smaller amounts that add up to Rs 20,000 or more from the same person are covered.
Does the Rs 2 lakh limit under 269ST apply to the payer or the receiver?
The restriction and the penalty under Section 271DA fall on the person who receives Rs 2 lakh or more in cash, not the one paying. Businesses that deal in high-value goods or services must be especially careful when billing a single customer or a single event.
What happens if I pay a business expense above Rs 10,000 in cash?
Under Section 40A(3) the entire expense is disallowed, meaning you cannot claim it as a deduction and your taxable profit rises accordingly. The threshold is Rs 35,000 for payments to goods-carriage (transport) operators.
Is a cash donation eligible for an 80G deduction?
Only up to Rs 2,000. Any cash donation above Rs 2,000 is not deductible under Section 80G. Pay by cheque, bank transfer, UPI or card to claim a deduction for larger amounts, and keep the receipt.
Can I receive cash on sale of my property?
Not if it is Rs 2 lakh or more, which Section 269ST prohibits. A cash advance of Rs 20,000 or more is separately restricted under Sections 269SS and 269T. Property consideration and advances should always move through banking channels.
