What Is the Section 269ST Rs. 2 Lakh Cash Limit, and Who Pays the Penalty?

Introduced by the Finance Act 2017^[8] in the demonetisation-era cashless push, the cap applies three ways, and breaching any one prong is enough. The Rs. 2 lakh figure is a hard line, not a slab, so a single rupee over it exposes the whole receipt.

• →In aggregate from one person in a single day, even across several small cash handovers.
• →In a single transaction, whatever the date split.
• →Across transactions relating to one event or occasion, such as a wedding or property deal.
• →The Rs. 2 lakh test is per receiver per source, so the same person can receive Rs. 1.99 lakh cash from two different people on the same day without breaching it.

• →Accept Rs. 3,00,000 in cash from one person and the penalty is Rs. 3,00,000, separate from any tax on the income itself.
• →The penalty falls on whoever receives the cash; there is no benefit-of-doubt or good-faith carve-out.
• →The law does not require intent to evade tax. The act of receiving Rs. 2 lakh or more is the violation.
• →The receiver carries the risk, so it is the receiver who should insist on a bank transfer above the limit.

• →Government entities, banks, and post offices receiving cash are outside Section 269ST.
• →Repayment of loans and deposits is governed by Section 269T (Rs. 20,000 cash limit); accepting a cash loan or deposit is separately capped at Rs. 20,000 by Section 269SS.
• →Receipts by way of inheritance or will are exempt.
• →No exemption covers rent collection, real estate payments, service fees, or ordinary business receipts. Those are squarely caught.

Monthly rent paid in cash up to Rs. 1.99 lakh is within the wording, but the daily-aggregate prong means several cash payments from the same tenant on one day can still cross the line.

The trigger is the mode and size of the payment, not the size of the expense, and the whole amount is disallowed, not just the excess. A Rs. 40,000 cash payment to a supplier can cost you tax on the full Rs. 40,000, not on Rs. 30,000, so a habit of paying suppliers in cash quietly inflates taxable profit across the year.

• →Splitting one bill into several sub-Rs. 10,000 cash payments on the same day to the same person does not save it; the day total is tested.
• →The limit rises to Rs. 35,000 for payments for plying, hiring, or leasing goods carriages, recognising that transport operators often deal in cash.
• →Rule 6DD^[5] lists exempt cases, such as payments made where no bank serves the area, or to a cultivator for certain farm produce.
• →Section 40A(3A)^[4] goes further, treating an expense allowed in an earlier year as income if you settle it in cash above the limit in a later year.

• →One rule looks at money you pay out, the other at money you take in.
• →Routing payments through the bank and issuing a proper invoice keeps you clear of both provisions at once.
• →A bank-paid, documented expense is what lets you claim the deduction and keep the audit trail intact.

A payment receipt confirms money already received; an invoice requests payment. The GST tax invoice is also called a pakka bill. For the difference between an invoice, a receipt, and a quotation, see invoice vs receipt vs quotation.

• →Issuing receipts creates a paper trail for both parties, even when no statute compels it.
• →Receipts are required for expense reimbursements and support loan applications and audits.
• →Receipts hold up as evidence in a payment dispute.
• →Payment receipts cover rent, services, goods, deposits, and event bookings; for rent, use the rent receipt generator, and for the rest, the payment receipt generator.

Recording the mode and the UTR is also the simplest 269ST safeguard: a receipt that shows the money moved by bank transfer documents that the Rs. 2 lakh cash bar was never in play.

• →A receipt number and the date of payment, for your records and the audit trail.
• →The payer name and the payee or business name.
• →The amount in both figures and words, plus the purpose or description.
• →The payment mode (cash, UPI, NEFT, cheque) and a reference or UTR number for digital payments, which is what a CA later matches to the bank statement.
• →The signature or stamp of the receiving party; on cash above Rs. 5,000, the Re. 1 revenue stamp, available at post offices and stationery shops.

A freelancer billing one client Rs. 70,000, Rs. 80,000, and Rs. 75,000 in cash under a single contract aggregates to a Rs. 2.25 lakh figure and a matching penalty. The auditor then confirms the audited person was the receiver and checks the exemptions (government, banking-company, post office, and cooperative-bank receipts are excluded).

• →Each receipt is matched to its invoice; for NEFT, IMPS, RTGS, and UPI, the UTR must appear in the bank statement on the receipt date in the same amount and payer.
• →A B2B provider running 60 to 70 percent cash carries visible Section 269ST and Section 269SS exposure.
• →Cash receipts above Rs. 5,000 must carry the Re. 1 revenue stamp under the Indian Stamp Act, 1899^[7].

• →SFT triggers include Rs. 10 lakh in cash deposits to a savings account, Rs. 50 lakh to a current account, and a Rs. 30 lakh property purchase or sale.
• →A Rs. 10 lakh aggregate in bonds, shares, mutual-fund units, or time deposits, plus credit-card payments of Rs. 1 lakh in cash or Rs. 10 lakh by any mode.
• →The CA reconciles each entry against the books, catching unilateral fabrication and material omission; a cash ratio out of line with the sector is itself a flag.
• →For high-value dealings the buyer must also quote PAN under Rule 114B; see when PAN or Form 60 is required.

• →Banking-channel receipts create an audit trail and are exempt, so they remove the 269ST risk entirely.
• →Watch the daily-aggregate prong: several sub-limit cash receipts from the same person in one day can still cross Rs. 2 lakh.
• →Pay suppliers above Rs. 10,000 by bank so the Section 40A(3)^[4] deduction survives.
• →Always issue a payment receipt recording the mode and the UTR, which protects both sides in any later inquiry.

The 1961 Act is being replaced by the Income-tax Act, 2025, and section numbers shift under the new Act, as they did for salary TDS (Section 192 became Section 392). This guide uses the familiar 1961 numbers because most practitioners, portals, and notices still display them through 2026-27, and the rule each one carries has not changed. For the wider renumbering context, see our income tax slabs FY 2026-27 explainer.