Cash transaction limits
The three cash rules every cash-heavy SME must know, and the penalties
India restricts cash through three separate rules, and they bite independently. Section 269ST bars receiving Rs 2,00,000 or more in cash from one person in a day, in a single transaction, or for one event, with a penalty under Section 271DA equal to 100% of the amount received. Sections 269SS and 269T bar accepting or repaying a loan or deposit of Rs 20,000 or more in cash, each with a penalty equal to the amount. And Section 40A(3) disallows a business expense paid in cash above Rs 10,000 a day to one payee (Rs 35,000 for transporters), not a penalty, but you lose the deduction. Splitting a bill to stay under a limit does not work, substance beats form.
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Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact Income Tax Department. Read our editorial scope →
Section 269ST: the Rs 2 lakh receipt cap
You must not receive Rs 2,00,000 or more in cash from a single person in a day, as a single transaction, or in respect of one event or occasion. The penalty under Section 271DA falls on the recipient and equals 100% of the amount received, so accepting Rs 2.5 lakh in cash can cost Rs 2.5 lakh in penalty. Banks, the government, post offices and co-operative societies are carved out, and amounts that are loans are dealt with separately under 269SS. Even a wedding gift over Rs 2 lakh in cash from one donor falls foul of 269ST, the gift exemption does not override it.
Sections 269SS and 269T: loans and deposits
Loans, deposits and specified advances for immovable property are governed separately. Section 269SS bars accepting such a loan or deposit of Rs 20,000 or more in cash (penalty under Section 271D equal to the amount), and Section 269T bars repaying one of Rs 20,000 or more in cash (penalty under Section 271E equal to the amount). These are relationship-agnostic: a cash loan of Rs 20,000 or more from a family member also breaches 269SS, and a cash advance of Rs 20,000 or more for buying property does too. Route loans and deposits through the banking system.
warningA cash loan or deposit of Rs 20,000 or more, even between family, breaches Section 269SS (accepting) or 269T (repaying), with a penalty equal to the amount. Use a bank transfer for any loan, deposit or property advance at or above Rs 20,000.
Section 40A(3) and substance over form
Section 40A(3) is different: it is not a penalty but a disallowance. A business expense paid in cash above Rs 10,000 in a day to one payee (Rs 35,000 for payments to a transporter) is not deductible, so you lose the tax benefit of that expense, with limited Rule 6DD exceptions (for example payments to farmers for produce, or in areas without banking). Across all these rules, splitting a transaction to stay under a limit does not help: receiving Rs 4.5 lakh as three Rs 1.5 lakh cash bills still breaches 269ST, because substance beats form and the penalty is the full amount.
tipThree rules, three numbers: Rs 2 lakh on what you receive (269ST), Rs 20,000 on loans (269SS/T), Rs 10,000 on deductible cash expenses (40A(3)). Take and make significant payments digitally and all three look after themselves.
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Calculators
Source / notes
- Income-tax Act 1961 s.269ST + s.271DA (Rs 2 lakh receipt cap, 100% penalty) (Income-tax Act 2025 ss.186/451)
- Income-tax Act 1961 s.269SS + s.269T (Rs 20,000 loan/deposit cash bar) (Income-tax Act 2025 ss.185/188)
- Income-tax Act 1961 s.40A(3) (cash expense over Rs 10,000 disallowed; Rule 6DD exceptions) (Income-tax Act 2025 s.36)
Frequently asked questions
How much cash can I receive in a transaction?+
Less than Rs 2,00,000 from one person. Section 269ST bars receiving Rs 2 lakh or more in cash from a single person in a day, in a single transaction, or for one event or occasion. The penalty under Section 271DA is 100% of the amount received, falling on the recipient. So accepting Rs 2 lakh or more in cash is one of the most expensive cash mistakes an SME can make.
Can I take a cash loan from a family member?+
Not Rs 20,000 or more. Section 269SS bars accepting a loan or deposit of Rs 20,000 or more in cash, regardless of the relationship, with a penalty equal to the amount, and Section 269T bars repaying one of Rs 20,000 or more in cash. So a family loan, a deposit, or a property advance at or above Rs 20,000 should go through the banking system, not cash.
What happens if I pay a business expense in cash?+
If a single expense paid in cash to one payee in a day exceeds Rs 10,000 (Rs 35,000 for a transporter), Section 40A(3) disallows it, you cannot deduct it, so you effectively pay tax on that amount. It is not a penalty, it is a lost deduction. Limited Rule 6DD exceptions exist (such as payments to farmers or in areas without banking), but the safe course is to pay larger expenses digitally.
Can I split a large cash payment to stay under the limit?+
No. Splitting does not work because the rules look at substance, not form. Receiving Rs 4.5 lakh as three separate Rs 1.5 lakh cash bills still breaches Section 269ST (one person, one event), and the penalty is the full amount received. The same applies to structuring loans or expenses to dodge the Rs 20,000 or Rs 10,000 limits. Use banking channels instead.
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