Start with the transaction and the applicable Act
The examples use the Income-tax Act, 1961, principally FY 2025–26. For periods governed by the Income-tax Act, 2025, see sections 185, 186 and 188 for the corresponding acceptance, receipt and repayment rules and apply section 536 to the transition. Do not use one cash limit for all transactions.
| Old Act provision | Threshold and test | Penalty and defence |
|---|---|---|
| 269SS: acceptance | ₹20,000 or more: test the new loan, deposit or specified sum, unpaid relevant amounts from the same person, and the combined amount. | Section 271D: amount taken or accepted in contravention, subject to reasonable cause under section 273B. |
| 269T: repayment | ₹20,000 or more: test the amount and statutory aggregate, including applicable interest. This also covers specified advances. | Section 271E: amount repaid in contravention, subject to reasonable cause under section 273B. |
| 269ST: other covered receipts | ₹2 lakh or more, using any of three tests: aggregate from a person in a day; a single transaction; or transactions relating to one event or occasion from a person. | Section 271DA: the offending receipt amount, subject to the good-and-sufficient-reasons proviso to subsection (1). |
Use an account payee cheque or bank draft, electronic clearing through a bank account or a prescribed electronic mode. Under the old rules, Rule 6ABBA lists modes including UPI, NEFT, RTGS and IMPS. A deposit of physical cash into a bank account does not become an electronic transfer. Check the requirements for payment to the proper payee. Under the 1961 Act, the Assessing Officer imposes penalties under sections 271D, 271DA and 271E on or after 1 April 2025. The corresponding provisions of the 2025 Act are sections 450, 451 and 453; check its applicable relief provision.
Apply the correct statutory exceptions
A specified sum under section 269SS is a sum receivable in relation to an immovable property transfer, as an advance or otherwise, whether or not the transfer occurs. Under section 269T, a specified advance refers to money in the nature of an advance relating to such a transfer. In each case identify the contract and character of the payment before applying the rule. For example, accepting another ₹5,000 in cash against ₹15,000 of relevant unpaid borrowing from the same lender meets the ₹20,000 threshold.
Section 269SS has a proviso where both parties have agricultural income and neither has any income chargeable to tax. Test both conditions. The law also provides institutional exceptions and substitutes a ₹2 lakh threshold in narrowly specified primary agricultural credit society or primary co-operative agricultural and rural development bank transactions with members. Sections 269ST and 269T have their own exceptions. In particular, section 269ST excludes transactions of the nature referred to in section 269SS; establish the nature of the transaction rather than assuming that every property receipt or every agricultural payment qualifies.
Check all three receipt tests
Five same-day receipts of ₹50,000 from one customer total ₹2.50 lakh and meet the daily test. Five ₹1.60 lakh cash instalments for a single ₹8 lakh car sale are covered by the single-transaction test even if paid on different dates. A ₹3.50 lakh cash collection from one customer for one wedding can meet the event test even where invoices cover different functions and dates.
Business expense, asset cost and audit reporting
Section 40A(3) tests whether non-permitted payment or aggregate payments to a person in a day exceed ₹10,000, or ₹35,000 for the specified payments for plying, hiring or leasing goods carriages. The deduction can be disallowed for the covered expenditure, subject to Rule 6DD and other applicable conditions. Section 40A(3A) deals with covered later payments against a prior deduction. Section 43(1) separately excludes covered non-permitted payments for asset acquisition from actual cost when the person-per-day amount exceeds ₹10,000. This is a tax cost calculation, separate from book depreciation.
For the 1961 Act tax audit, check the applicable notified version of Form 3CD Clause 31 and the current reporting codes. The clause has separate fields for loan or deposit acceptance, specified sums, certain receipts and payments, and repayment; the reporting exercise is not itself a finding of contravention. Reconcile the cash book and bank evidence to the relevant sub-ledgers.
A.B. Shanthi upheld section 269SS and discussed the protection of section 273B. Retain contemporaneous evidence of reasonable cause; a commercial or medical emergency is not an automatic exemption. The Bombay High Court in Triumph International Finance treated the journal-entry repayment before it as a contravention of section 269T but upheld relief on the facts under section 273B. Do not use journal entries as a blanket exception.
Seven worked illustrations
These are hypothetical examples. A penalty figure is the potential statutory amount if imposed on the stated facts, not a reported result.
1. Property token money
On an ₹85 lakh plot sale, the seller takes ₹1.50 lakh in cash as earnest money and later receives ₹83.50 lakh through RTGS. The initial receipt is assumed to be a specified sum; the possible section 271D penalty is ₹1.50 lakh. A later bank deposit or compliant balance payment does not change the mode of the original receipt. Review any applicable exception or reasonable cause separately.
2. Director funds a shortfall
A director deposits ₹75,000 in cash into a company account before an urgent GST payment. If the amount is in substance a repayable loan, the company should examine section 269SS and the ₹75,000 exposure under section 271D. Verify the actual rights, documentation and flow of funds before describing it as capital. Establish why a permitted mode was unavailable before relying on reasonable cause.
3. Three receipts for one wedding
A banquet operator bills ₹4.50 crore and receives ₹1.80 lakh, ₹1.90 lakh and ₹1.75 lakh in cash on separate days from the same customer for one wedding. The three cash amounts total ₹5.45 lakh. On those facts the event test applies, with possible section 271DA exposure of ₹5.45 lakh. Separate daily receipts do not displace the event test.
4. Repayment when a firm dissolves
A firm pays an ₹80,000 loan to its lender in cash at dissolution. Assuming no exception applies, the amount meets the section 269T threshold and the potential penalty on the repayer is ₹80,000 under section 271E. A signed receipt does not cure the payment mode. Distinguish the firm’s penalty from any separate statutory recovery question involving partners.
5. Agricultural income proviso
Two persons with agricultural income transact for a farm at ₹6 lakh. If the amount accepted is a specified sum and neither party has any income chargeable to tax, the section 269SS agricultural-income proviso can apply on the evidence. Land records alone do not prove that neither has chargeable income. For a final sale receipt or a differently characterised payment, assess the application of section 269SS and the specific scope of the section 269ST exclusion before relying on either.
6. Urgent hospital borrowing
A person borrows ₹1.50 lakh in cash at 11:30 p.m. and pays a hospital deposit at 12:15 a.m., 45 minutes later. Preserve records of the urgency, timing and practical payment options. Section 273B relief depends on proved reasonable cause; the hospital’s receipt is a separate transaction for its own compliance review.
7. Cash component of machinery cost
A printing machine costs ₹6 lakh: ₹1.50 lakh paid by RTGS and ₹4.50 lakh paid in cash to the same supplier in one day. Assume the cash amount is excluded under section 43(1), the 15% tax rate applies and the machine meets the full-year depreciation condition. Tax depreciation is ₹22,500, versus ₹90,000 on the unadjusted cost, a difference of ₹67,500. Book depreciation is determined separately.
Frequently asked questions
Can an invoice be settled with ₹1.50 lakh in cash?
Consider the other payments from the same person that day, the total non-permitted receipts for that transaction, and receipts for a common event. A single amount below ₹2 lakh does not decide the result.
Are journal entries safe?
Identify whether the entry is a new loan, a repayment or another settlement, and consider the applicable case law and facts. Record the commercial reason and evidence.
Is there a general family loan exception?
No. An actual ₹50,000 cash loan from a relative can fall within section 269SS; examine the statutory exceptions and any reasonable cause. Do not confuse a loan with a gift or apply the gift-tax relative definition.
Is the repayment threshold inclusive?
Yes. The ordinary rule applies at ₹20,000, subject to the statutory aggregate and exceptions. If a promoter loan of ₹25,000 is repaid in cash in contravention, the possible penalty is ₹25,000 even if the promoter owns the company.
What should finance teams monitor?
Monitor person-per-day totals, unpaid balances, property advances, related invoices and the mode of payment. Keep separate evidence for accounting disallowance, audit disclosures and any penalty defence.
Sources
- Income-tax Act, 1961: sections 40A, 43, 269SS, 269ST, 269T, 271D, 271DA, 271E and 273B
- Income-tax Act, 2025: sections 185, 186, 188 and corresponding penalties; section 536
- CBDT Notification 23/2025: amendments to Form 3CD
- Income-tax Rules, 1962: prescribed electronic modes in Rule 6ABBA
- Supreme Court: Assistant Director of Inspection (Investigation) v Kum. A.B. Shanthi
- Bombay High Court: CIT v Triumph International Finance (I) Ltd.