Almost every cash provision in Indian tax law shares one design feature: the penalty is not a percentage of tax, it is a percentage of the transaction — usually 100% of it. Accept ₹2 lakh in cash and the penalty can be ₹2 lakh. That asymmetry is deliberate, and it is why cash rules deserve more care than their modest-sounding limits suggest.
There are four rules that catch ordinary businesses, and they are frequently confused with one another because the numbers are different and the direction of travel is different. Here they are separated out.
The four rules, side by side
| Rule | What it restricts | Limit | Cost of breaking it |
|---|---|---|---|
| 269ST | Receiving cash | ₹2,00,000 or more | Penalty equal to the amount received |
| 40A(3) | Paying a business expense in cash | Above ₹10,000 per person per day | The expense is disallowed — you pay tax on it |
| 269SS | Accepting a loan or deposit in cash | ₹20,000 or more | Penalty equal to the amount accepted |
| 269T | Repaying a loan or deposit in cash | ₹20,000 or more | Penalty equal to the amount repaid |
Note the direction. 269ST is about money coming in. 40A(3) is about money going out as expense. 269SS and 269T are the two ends of a loan. A business can breach all four in a single week without any of them involving evasion.
269ST: the ₹2 lakh receipt bar, and its three limbs
This is the rule people misread most often, because it bars receipts in three different ways at once. You may not receive ₹2 lakh or more in cash:
- from one person in a single day, even across several unrelated bills;
- in respect of a single transaction, even if split across several days;
- in respect of transactions relating to one event or occasion.
The third limb is the one that catches wedding caterers, banquet halls, jewellers and tour operators. Splitting a ₹5 lakh function into five ₹1 lakh receipts on five dates does not help — it is one occasion. The penalty under 271DA is the amount received, and it lands on the receiver, not the payer.
If your business regularly takes large cash from walk-in customers, this is the single highest-value control to put in place: a hard stop in the billing system at ₹2 lakh per customer per day, per transaction and per event.
40A(3): the ₹10,000 expense rule
Pay more than ₹10,000 to a single person in a single day, in cash, against a business expense, and the whole payment is disallowed as a deduction. The limit rises to ₹35,000 for payments to transporters for plying, hiring or leasing goods carriages.
Two practical traps. First, it is per person per day in aggregate — three payments of ₹4,000 to the same supplier on the same day is ₹12,000 and fails. Second, disallowance is not a penalty, so it is easy to under-rate: on a 30% bracket, a ₹50,000 cash payment costs about ₹15,000 in extra tax and produces no deduction at all.
Capital expenditure has a parallel rule — pay for an asset in cash above the limit and that amount is not added to the block, so you lose the depreciation too. Our note on depreciation and blocks of assets covers how the block works.
269SS and 269T: the two ends of a loan
Accepting a loan, deposit or specified advance of ₹20,000 or more otherwise than by account-payee cheque, draft or electronic transfer breaches 269SS. Repaying the same breaches 269T. Penalties under 271D and 271E are each equal to the amount involved.
The everyday version of this is not a formal loan at all: a director putting cash into the business to cover a shortfall, or a family member funding a purchase and being repaid in cash later. Both legs are caught. Route director funds through the bank and record them properly — our ROC compliance guide covers the disclosure side.
There is one important carve-out: cash transactions between close relatives that are genuinely not loans or deposits have been read sympathetically in several rulings, but that is a defence argued after the fact, not a plan.
How these interact with the new Act
The Income-tax Act 2025 renumbers these provisions but carries the substance across unchanged — the limits, the directions and the penalty-equals-amount design all continue. If you are mapping old section numbers to new ones, our section map for the Income-tax Act 2025 is the reference.
Separately, remember that cash intensity also drives your tax audit threshold: staying within 5% cash both ways is what lifts the audit limit from ₹1 crore to ₹10 crore. Cash discipline is not only about penalties — it changes which compliance regime you sit in.
Where we come in
We look at cash exposure as part of every bookkeeping and MIS engagement — where receipts cluster near ₹2 lakh, which expense heads carry cash above ₹10,000, and whether any director funding has been routed the wrong way. If a penalty notice has already arrived, our notice handling service deals with the reply.
This article is general information, not professional advice. Limits, rates and dates change by notification — confirm the position for your own year before acting on it.