Income tax · Business and professionals
What are the limits on cash payments, cash receipts and cash loans under income tax?
Short answer
A business expense paid in cash above ₹10,000 to one person in a day is disallowed (₹35,000 for transporters). No one may receive ₹2 lakh or more in cash from a person in a day, for one transaction or for one event; the penalty equals the amount. Loans, deposits and advances for property of ₹20,000 or more cannot be taken or repaid in cash; the penalty again equals the amount.
The four rules at a glance
| Rule | What is restricted | Limit | Consequence |
|---|---|---|---|
| 40A(3) (now 36) | Business expense paid other than by account-payee cheque, draft, bank transfer or other prescribed electronic mode | Above ₹10,000 to one person in one day (₹35,000 for payments to transporters for hiring goods carriages) | The expense is disallowed |
| 269ST (now 186) | Receiving cash | ₹2 lakh or more from one person in a day, for one transaction, or for one event or occasion | Penalty equal to the amount received |
| 269SS (now 185) | Taking a loan, deposit, or advance for immovable property, in cash | ₹20,000 or more | Penalty equal to the amount |
| 269T (now 188) | Repaying such a loan, deposit or advance in cash | ₹20,000 or more | Penalty equal to the amount |
Points people miss
- Section 269ST (now 186) applies to everyone, not only businesses: a wedding gift of ₹2 lakh in cash, or the cash part of a property deal, is caught. The penalty falls on the person who receives the cash.
- Splitting one bill into several cash payments the same day does not help: the limit under section 40A(3) (now 36) is per person per day, and under section 269ST (now 186) per transaction or event.
- If an expense was allowed in an earlier year on the accrual basis and is paid in cash above the limit later, it is treated as income of the year of payment.
- A cash payment above ₹10,000 for buying an asset is not part of its cost, so no depreciation is allowed on it.
- Payments to banks and the Government, and certain other cases listed in the rules, are exempt.
Reasonable cause
The penalties under sections 269SS, 269ST and 269T (now sections 185, 186 and 188; penalty sections 450, 451 and 453) are not levied if you prove a reasonable cause, such as a genuine emergency. Keep the evidence. The tax audit report also asks the auditor to list such transactions, so they are usually noticed.
Legal basis
- Section 40A(3), Income-tax Act, 1961, now section 36, Income-tax Act, 2025
- Sections 269SS, 269ST and 269T, now sections 185, 186 and 188
- Penalties: sections 271D, 271DA and 271E, now sections 450, 451 and 453
Official sources
Related questions
- When is a tax audit compulsory, and what are the turnover limits?A business needs a tax audit if its turnover exceeds ₹1 crore, or ₹10 crore where cash receipts and cash payments are each within 5% of the total. A...
- Who can opt for presumptive tax under sections 44AD, 44ADA and 44AE, and what are the limits?Small businesses with turnover up to ₹2 crore (₹3 crore if cash receipts are within 5%) can declare 8% of turnover as income, or 6% of digital...