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

In summary

The rule aims to limit large cash receipts and encourage traceable payment methods. The restriction applies to specified transactions, even when payments are split into smaller amounts.

• Cash receipt threshold: Rs. 2 lakh or more.
• Three conditions: Total receipts from one person in a day, a single transaction, or transactions relating to one event or occasion.
• Permitted modes: Account payee cheque, account payee bank draft, electronic clearing system through a bank account, or another prescribed electronic mode.
• Penalty: The penalty under Section 451 of the Income Tax Act, 2025 may equal the amount received in contravention.
• Exceptions: Certain government, banking, and other specified receipts are excluded.

For transactions governed by the earlier law, refer to Section 269ST. 

Section 269ST of the Income Tax Act, 1961 restricted a person from receiving Rs. 2 lakh or more except through specified banking or electronic payment modes in three situations:

• Aggregate receipts in one day: The total received from one person reaches Rs. 2 lakh or more.
• A single transaction: The amount for one transaction is Rs. 2 lakh or more.
• One event or occasion: Payments from one person relating to the same event total Rs. 2 lakh or more.

The rule was introduced to discourage large cash transactions, reduce the use of unaccounted money, and improve financial transparency. The restriction concerns the mode of receiving payment, not a general ban on transactions of this value.

The Income Tax Act, 2025 took effect on 1 April 2026. The rule previously contained in Section 269ST of the 1961 Act is now covered by Section 186 of the 2025 Act. The corresponding penalty provision is Section 451.

The Rs. 2 lakh threshold and the three tests for assessing receipts remain. Section 186 also specifies the permitted payment modes and exceptions. 

For other tax-related topics, read - Income Tax slab for FY 2026-27.

Here are some examples of the cash receipt rule:

Multiple receipts from one person in a day

A furniture dealer receives Rs. 1.4 lakh in cash from a customer in the morning and another Rs. 70,000 from the same customer that evening. The total is Rs. 2.1 lakh. The daily aggregate threshold is crossed, even though neither individual payment reaches Rs. 2 lakh.

A single transaction

A customer agrees to pay a service provider Rs. 2.5 lakh for a project. The provider must not receive this amount through a prohibited mode. The payment should instead be made through an account payee cheque, bank draft, or permitted electronic method.

Payments relating to one event

A wedding planner receives Rs. 1.5 lakh in cash from a client for catering and another Rs. 80,000 for decorations relating to the same wedding. The total is Rs. 2.3 lakh. Splitting the payment across services does not avoid the event-based test.

These examples illustrate how the threshold works. The actual treatment depends on the transaction details and applicable statutory provisions.

Under Section 451 of the Income Tax Act, 2025, the Assessing Officer may impose a penalty equal to the amount received in contravention of Section 186.

For example, if a person receives Rs. 3 lakh in a prohibited manner, the penalty may be Rs. 3 lakh. The liability falls on the recipient, rather than automatically on the person making the payment.

The penalty provision and any applicable defence should be assessed against the facts of the case. If you receive a tax notice, seek advice from a qualified tax professional rather than assuming that an emergency or a genuine mistake will automatically prevent a penalty.

Section 186 contains exceptions for specified receipts, including receipts by the Government, banking companies, post office savings banks, and co-operative banks. It also excludes transactions covered by Section 185 and other persons, classes, or receipts notified by the Central Government.

The rules governing loans, deposits, and repayments are separate. For background on the earlier provisions, read Section 269SS. Do not assume that every loan or repayment is covered by the general cash receipt rule; check the relevant provision for the transaction.

You can also read about Section 56 of Income Tax Act and Section 234A of Income Tax Act for other tax provisions.

Individuals and businesses can reduce compliance risks by following these practices:

• Use permitted payment methods: For receipts of Rs. 2 lakh or more covered by the rule, use a permitted banking or electronic mode.
• Track daily totals: Record receipts from each person to identify when the daily threshold may be reached.
• Link payments to transactions: Maintain invoices, receipts, contracts, and records showing the purpose of each payment.
• Track event-related payments: Check whether separate receipts relate to the same event or occasion.
• Verify exceptions: Confirm that a statutory exception or government notification applies before relying on it.

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The cash receipt restriction previously set out in Section 269ST continues under Section 186 of the Income Tax Act, 2025, from 1 April 2026. The Rs. 2 lakh threshold applies to daily aggregate receipts from one person, a single transaction, or transactions relating to one event or occasion. Use permitted payment methods, maintain clear records, and check the applicable law before relying on an exemption.

Last reviewed: 14 October 2026

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