Introduction
In an increasingly digitised Indian economy, paying or receiving money in cash — especially in large amounts — can land you in serious legal and tax trouble. Yet, many individuals and businesses continue to make high-value cash payments without fully understanding the penalty provisions, audit triggers, and income tax consequences involved.
In this blog post, let’s unpack the practical limits on cash transactions under the Income Tax Act, 1961, and other regulatory laws, while also discussing real-life cases and what the public should avoid to stay compliant and stress-free.
1. Cash Transaction Limits Under Income Tax Act
Several sections of the Income-tax Act impose strict restrictions on cash transactions:
🔹 Section 269SS
- No person can accept a loan or deposit of ₹20,000 or more in cash.
- Applies to both individuals and businesses.
- Penalty: 100% of the amount under Section 271D.
🔹 Section 269T
- No person can repay a loan or deposit of ₹20,000 or more in cash.
- Penalty: 100% of the amount under Section 271E.
🔹 Section 269ST
- Prohibits receipt of ₹2,00,000 or more in cash:
- from a single person in a day,
- in respect of a single transaction, or
- for transactions relating to one event or occasion.
- Penalty: Equal to the amount received in cash, under Section 271DA.
🔹 Section 40A(3) – Disallowance in Business
- If a business incurs an expenditure exceeding ₹10,000 in cash, it is disallowed as a deduction.
- For payments to a transport operator, the limit is ₹35,000.
2. Other Regulatory Restrictions
- Real Estate: Builders or agents demanding more than ₹2 lakh in cash violate Section 269ST and could attract FEMA, RERA, and Benami Transaction laws.
- Jewellery Purchases: PAN and Aadhaar are mandatory if cash purchases exceed ₹2 lakh. Dealers may also need to comply with PMLA obligations.
- Donations: No tax deduction under Section 80G is allowed for cash donations over ₹2,000.
- Political Donations: Over ₹2,000 in cash to political parties? Not allowed.
3. Case Studies from Indian Courts
✔️ Ajitnath Hi-tech Builders Pvt. Ltd. v. CIT (ITAT Pune)
Received ₹50 lakh in cash from a buyer — penalty confirmed under Section 271DA even though the amount was meant to be adjusted in future.
✔️ Shree Balaji Dealcom Pvt. Ltd. v. CIT
Cash loans above ₹20,000 were treated as unexplained income + penalty under 271D.
These cases show intent is irrelevant — even genuine transactions can attract severe penalties if done in cash.
4. Practical Advice for Common Public
✅ What You Can Do:
- Use UPI, NEFT, RTGS, IMPS, or bank cheque for high-value payments.
- Always document financial dealings.
- For loan repayments, prefer banking channels even if it’s a friend or family member.
❌ What You Shouldn’t Do:
- Avoid giving or taking cash of ₹2 lakh or more — even for personal occasions like weddings or gifts.
- Don’t pay house rent, school fees, or hospital bills in cash above threshold limits.
- Do not withdraw large amounts in cash unless absolutely required and properly recorded.
5. The Increasing Surveillance
Income Tax Department is monitoring cash deposits, ATM withdrawals, luxury cash spends, and cash-heavy sectors. With AIS (Annual Information Statement) and TIS (Taxpayer Information Summary) now live on the income tax portal, cash activity is being flagged automatically.
6. Final Thoughts
Cash is no longer king — it’s becoming a liability.
In 2025, the Indian legal and tax framework has zero tolerance for large, unexplained, or poorly documented cash transactions. Whether you’re a salaried person, a business owner, or just someone buying gold or property — it’s time to go digital, keep your records clean, and consult a Chartered Accountant if you’re unsure.
Stox N Tax 
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