Section 269ST of the Income Tax Act,1961: Cash Limit and Penalty

Introduction

Section 269ST of the Income Tax Act was introduced to restrict high-value cash receipts and improve the traceability of financial transactions. Under the Income tax Act, 1961, it prohibited a person from receiving ₹2 lakh or more through cash or another non-permitted mode in specified circumstances.

From 1 April 2026, the corresponding restriction is contained in Section 186 of the Income tax Act, 2025. Although the section number has changed, the basic ₹2 lakh cash transaction limit continues under the current law.

What is Section 269ST of the Income Tax Act?

Section 269ST of the Income Tax Act, 1961 restricted individuals, companies, firms, LLPs and other persons from receiving ₹2 lakh or more through cash or another non-permitted mode.

The cash transaction limit under Section 269ST of the Income tax Act applied in the following situations:

• In aggregate, from one person in one day;
• In relation to a single transaction; or
• For transactions relating to one event or occasion from one person.

These conditions are now covered under Section 186 of the Income tax Act, 2025.

When Does the ₹2 Lakh Cash Transaction Limit Apply?

1. Receipts From One Person in One Day

A person cannot receive ₹2 lakh or more in aggregate from another person in one day through cash or another non-permitted mode.

For example, a customer pays ₹1,20,000 in cash in the morning and another ₹90,000 in cash later on the same day. The total receipt is ₹2,10,000.

Therefore, the restriction applies even though each individual payment was below ₹2 lakh.

2. Receipts Relating to a Single Transaction

The cash receipt limit under the Income Tax Act also applies to the total amount received for a single transaction.

For example, goods worth ₹3 lakh are sold to a customer. The customer pays ₹1.5 lakh in cash on one day and another ₹1.5 lakh on a different day.

The payments may violate the provision because both amounts relate to the same transaction. Splitting the payment across different days does not avoid the restriction.

3. Receipts Relating to One Event or Occasion

Several transactions may be combined when they relate to one event or occasion.

For example, a wedding service provider raises separate invoices for catering, decoration, and venue arrangements. If the provider receives ₹2 lakh or more in cash from the same person for the same wedding, the restriction may apply.

Is Every Cash Receipt Below ₹2 Lakh Allowed?

No. A cash receipt below ₹2 lakh is not automatically permitted.

Multiple smaller receipts may be combined when they are:

• Received from the same person on the same day;
• Connected with a single transaction; or
• Related to one event or occasion.

Therefore, receiving ₹1 lakh on three separate days against one invoice of ₹3 lakh may still violate the ₹2 lakh cash transaction limit.

Other cash receipt and payment provisions in India may also prescribe different limits for loans, deposits, business expenses, donations, and property transactions.

Permitted Payment Modes for ₹2 Lakh or More

A person may receive ₹2 lakh or more through the following permitted modes:

• Account payee cheque;
• Account payee bank draft;
• Electronic clearing system through a bank account; or
• Any other prescribed electronic mode.
• Section 186 of the Income tax Act, 2025 expressly recognises these modes.

Businesses should retain invoices, bank statements, payment confirmations, and customer records as evidence that the amount was received through an approved mode.

Section 269ST Exemptions

The main Section 269ST of the Income Tax Act exemptions include:

• Receipts by the Central or State Government;
• Receipts by a banking company;
• Receipts by a post office savings bank;
• Receipts by a co-operative bank;

Transactions of the nature covered under Section 269SS, which are now governed by Section 185 of the Income tax Act, 2025; and
Persons, classes of persons or receipts notified by the Central Government.

The exemption applies only to the specified person, receipt, or transaction. It should not be treated as a general exemption from every cash restriction.

Section 269ST Applicability to NBFCs

NBFCs and Housing Finance Companies do not have a general exemption from Section 269ST. However, CBDT Circular No. 22/2017 clarified that each loan repayment instalment received by an NBFC or HFC will be treated as a separate transaction. Therefore, all instalments relating to the same loan are not aggregated for applying the single-transaction condition.

However, an individual cash instalment of ₹2 lakh or more may still violate the provision. The daily aggregate and event or occasion conditions must also be checked separately.

To understand their objectives, operating structure and regulatory framework, read the Key Difference Between Nidhi Company and Non-Banking Financial Companies (NBFC).

Penalty for Violation of the ₹2 Lakh Cash Receipt Limit

Under Section 271DA of the Income tax Act, 1961, the penalty for violating Section 269ST was equal to the amount received in contravention of the provision in contravention of the provision. Under the Income tax Act, 2025, the corresponding penalty is covered under Section 451. The Assessing Officer may impose a penalty equal to the amount received in violation of Section 186.

Under the earlier law, no penalty was imposable if the recipient proved that there were good and sufficient reasons for the violation. Under Section 470 of the Income tax Act, 2025, no penalty shall be imposed under Section 451 if the person proves that there was a reasonable cause for the failure.

Received an Income Tax Notice for Cash Transactions?

If you receive an Income tax notice regarding a high-value cash receipt or a possible violation of Section 269ST, Ebizfiling can help you review the notice, understand the issue and prepare a proper response.

Our team can assist with checking transaction records, organising invoices, bank statements and ledgers, identifying the documents required for an Income tax notice reply, and preparing a fact-based response for submission through the Income Tax portal.

Conclusion

Section 269ST of the Income Tax Act restricted the receipt of ₹2 lakh or more through cash or another non-permitted mode under specified circumstances. From 1 April 2026, the corresponding restriction is contained in Section 186 of the Income tax Act, 2025.

The limit must be checked based on receipts from one person in one day, receipts relating to a single transaction, and receipts connected with one event or occasion. Since the penalty may equal the amount received, individuals and businesses should use approved banking or electronic payment modes for high-value transactions.

Frequently Asked Questions