Key Takeaways
- Section 269SS prohibits accepting any loan, deposit, or specified sum of Rs 20,000 or more in cash from any person.
- Section 269T prohibits repaying any loan, deposit, or specified advance of Rs 20,000 or more in cash.
- The Rs 20,000 threshold is aggregate per person, not per transaction. Multiple smaller cash receipts from the same person that cross Rs 20,000 in total violate the section.
- Penalty: 100% of the cash amount. Section 271D penalises 269SS violations; Section 271E penalises 269T violations.
- Exempted entities: Central/State Government, banking companies, cooperative banks, post offices, and government corporations.
- Section 273B provides relief if the taxpayer proves reasonable cause for the violation.
Sections 269SS and 269T exist for one purpose: to create a traceable paper trail for loan and deposit transactions. Before these provisions were introduced (269SS in 1984, 269T in 1989), taxpayers routinely accepted and repaid large sums in cash, with no banking record to verify whether the transaction was genuine or a mechanism for laundering unaccounted income. The department had no way to distinguish a real business loan from a fabricated entry.
These sections force every loan and deposit transaction above Rs 20,000 into the banking system, where it leaves a permanent record that the Assessing Officer can verify during scrutiny.
Section 269SS: Restriction on Accepting Loans and Deposits
No person shall accept from any other person any loan or deposit or any specified sum of Rs 20,000 or more otherwise than by:
- Account payee cheque
- Account payee bank draft
- Electronic clearing system (ECS) through a bank account
- Other prescribed electronic modes (NEFT, RTGS, IMPS, UPI)
What Counts as a "Loan or Deposit"
The terms "loan" and "deposit" are not defined in the Income Tax Act. Courts have interpreted them broadly:
- Loan: Any sum borrowed by one person from another, with an obligation to repay. Includes both interest-bearing and interest-free loans, formal and informal arrangements.
- Deposit: Any sum placed with a person for safekeeping or earning interest. Fixed deposits with companies, security deposits with landlords, and partner capital contributions to firms all qualify.
"Specified Sum" (Added by Finance Act, 2015)
The Finance Act, 2015 inserted the term "specified sum" into Section 269SS to cover advance payments received in relation to the transfer of an immovable property. This amendment targeted the real estate sector, where large cash advances were common. After this amendment, a builder or property seller cannot accept Rs 20,000 or more in cash as an advance or earnest money for a property deal.
The Rs 20,000 Threshold: Aggregate, Not Per Transaction
The threshold is per person, aggregate. If Ramesh lends you Rs 10,000 in cash on 1 April and another Rs 15,000 in cash on 15 April, the aggregate is Rs 25,000. Both transactions together violate Section 269SS, even though each individual receipt was below Rs 20,000.
The aggregate also includes any existing outstanding balance. If Ramesh already has an unpaid loan of Rs 15,000 with you, and he gives you another Rs 8,000 in cash, the combined outstanding of Rs 23,000 triggers the provision.
Section 269T: Restriction on Repaying Loans and Deposits
Section 269T mirrors 269SS on the repayment side. No person shall repay any loan or deposit or specified advance of Rs 20,000 or more otherwise than by account payee cheque, account payee bank draft, ECS, or prescribed electronic mode.
The same Rs 20,000 aggregate threshold applies. The same categories of transactions are covered.
Why Both Sections Exist
269SS catches the recipient of cash. 269T catches the payer of cash. A single cash loan transaction can trigger both sections simultaneously: the borrower violates 269SS (by accepting cash), and the lender violates 269T (by repaying/giving cash). Each party is penalised independently.
Section 269ST: The Rs 2 Lakh Cash Receipt Restriction
Section 269ST (introduced by Finance Act, 2017) is a broader provision that restricts any person from receiving Rs 2,00,000 or more in cash in aggregate from a person in a day, or in respect of a single transaction, or in respect of one event or occasion.
Section 269ST covers all cash receipts, not just loans and deposits. It applies to sales, services, gifts, and any other receipt.
269SS (Rs 20,000) and 269ST (Rs 2,00,000) operate independently. A cash loan of Rs 50,000 violates 269SS. A cash sale of Rs 3,00,000 violates 269ST. A cash loan of Rs 3,00,000 violates both.
Penalties: Sections 271D and 271E
| Violation | Penalty section | Penalty amount | Levied on |
|---|---|---|---|
| Accepting loan/deposit/specified sum in cash (269SS violation) | Section 271D | 100% of the cash amount | The person who accepted the cash |
| Repaying loan/deposit/specified advance in cash (269T violation) | Section 271E | 100% of the cash amount | The person who repaid in cash |
The penalty is equal to the entire cash amount, not a percentage or a flat fee. If you accept a Rs 5,00,000 loan in cash, the penalty under Section 271D is Rs 5,00,000.
Who Imposes the Penalty?
The penalty is imposed by the Joint Commissioner of Income Tax, not the Assessing Officer. This is an important procedural safeguard: the penalty order must come from a rank of Joint Commissioner or above. A penalty order issued by an AO or Deputy Commissioner is void.
Time Limit for Penalty Proceedings
Penalty proceedings under 271D and 271E must be initiated within the time limits prescribed under Section 275. The penalty order should generally be passed before the expiry of the financial year in which the assessment proceedings are completed, or within six months from the end of the month in which the penalty proceedings were initiated, whichever is later.
Exempted Persons and Transactions
Section 269SS and 269T do not apply to transactions with the following entities:
- Government: Central Government and State Governments
- Banking companies: Any company governed by the Banking Regulation Act, 1949
- Cooperative banks: Including cooperative land mortgage banks and cooperative land development banks
- Post offices: Indian Post Office savings bank
- Government corporations: Corporations established by or under a Central, State, or Provincial Act
Transactions between these entities and any person can be in cash without attracting 269SS/269T. The rationale is that these entities already maintain comprehensive records, so the anti-evasion purpose of the provision is already served.
What About Agricultural Income?
There is no blanket exemption for agriculturists. However, the Section 273B reasonable cause defense has been successfully invoked by agricultural assessees in several ITAT decisions, particularly where banking facilities were not accessible in rural areas.
Section 273B: The "Reasonable Cause" Defense
Section 273B provides that no penalty shall be imposed under Sections 271D or 271E if the person proves that there was reasonable cause for the failure to comply with 269SS or 269T.
The burden of proof lies on the assessee. The AO (or Joint Commissioner) is not required to proactively consider reasonable cause; the taxpayer must raise it and substantiate it.
What Qualifies as Reasonable Cause?
Courts and tribunals have accepted the following as reasonable cause in various cases:
1. Genuine business urgency. Where a cash payment was made to prevent a business loss (e.g., paying a supplier in cash to avoid a production shutdown when banking channels were unavailable).
2. Banking facility not accessible. Rural areas where the nearest bank branch is far away, or situations where the bank was closed (holidays, strikes). ITAT Delhi has accepted this in cases involving agricultural businesses.
3. Bona fide transactions with no tax evasion intent. Where the transaction is genuine, reflected in books, and both parties have disclosed it in their returns, tribunals have held that the technical violation does not warrant a 100% penalty. The ITAT Delhi in a taxi operators' case waived the penalty where the transaction was bona fide and fully recorded.
4. Lender's instructions. The Chhattisgarh High Court waived penalty under Section 271E where the borrower repaid in cash because the lender specifically requested cash repayment.
5. Transactions between family members. Where a father lends cash to a son from household savings, and both parties are assessed to tax and have disclosed the transaction, tribunals have occasionally accepted the family context as a reasonable cause.
What Does NOT Qualify as Reasonable Cause?
- "I did not know about the law" is not reasonable cause.
- "The other party insisted on cash" is insufficient on its own (though it strengthened the case in the Chhattisgarh HC ruling above).
- "The amount was below Rs 20,000 per transaction" when the aggregate exceeds Rs 20,000 is not a defense.
- "My CA did not advise me" is not considered reasonable cause by most tribunals.
Journal Entry Transactions: A Grey Area
A contentious issue arises when loan transactions are routed through journal entries (book entries) rather than actual cash or bank transfers. For example, A owes Rs 5,00,000 to B, and B owes Rs 5,00,000 to C. Instead of moving money, A records a journal entry crediting C directly and debiting the loan to B.
The Bombay ITAT and several High Courts have held that journal entries are not "cash" transactions and do not violate Section 269SS/269T, because no physical cash changes hands. However, the department has taken a contrary position in some cases, arguing that any transaction not through a banking channel violates the provision.
The safer approach is to route all loan and deposit transactions through bank accounts, even if a journal entry would achieve the same economic result.
Practical Compliance Checklist
For business owners and partnership firms:
- Never accept or repay loans, deposits, or advances of Rs 20,000 or more in cash. Use NEFT, RTGS, IMPS, UPI, or account payee cheque.
- Maintain a per-person running total of cash transactions. Even if individual amounts are below Rs 20,000, the aggregate is what matters.
- For real estate transactions, ensure all advances and earnest money above Rs 20,000 are received through banking channels.
- If you receive a cash deposit from a customer or partner, issue a written request asking them to pay through banking channels instead.
- During tax audit (Section 44AB), the auditor is required to report 269SS/269T violations in Form 3CD (Clause 31(b) and 31(c)). Violations reported here will almost certainly lead to penalty proceedings.
Reporting in Tax Audit (Form 3CD)
The tax auditor must report under:
- Clause 31(b): Particulars of each loan or deposit accepted in contravention of Section 269SS
- Clause 31(c): Particulars of each repayment made in contravention of Section 269T
If the auditor reports a violation, the Assessing Officer is duty-bound to initiate penalty proceedings. The audit report itself becomes evidence.
Tip for firms and companies: Before the tax audit begins, review all cash receipts and payments above Rs 20,000. If violations exist, prepare your reasonable cause documentation in advance rather than scrambling after the penalty notice arrives.
Under the Income Tax Act 2025
The Income Tax Act 2025 (effective 1 April 2026) renumbers and reorganises the 1961 Act. The substantive provisions of Sections 269SS, 269T, 269ST, 271D, 271E, and 273B are carried forward under the new Act with no material changes to the rules, thresholds, or penalties. The Rs 20,000 limit, the 100% penalty, and the reasonable cause defense all continue. For AY 2026-27 (income earned up to 31 March 2026), the 1961 Act section numbers still apply.
Frequently Asked Questions
What is the cash limit under Section 269SS?
Rs 20,000. You cannot accept any loan, deposit, or specified sum of Rs 20,000 or more in cash. The threshold is aggregate per person, not per transaction.
What is the penalty for violating Section 269SS?
Section 271D imposes a penalty equal to 100% of the cash amount accepted. If you accepted Rs 3,00,000 in cash, the penalty is Rs 3,00,000.
Does Section 269SS apply to transactions between relatives?
Yes. There is no exemption for relatives or family members. A cash loan from your father exceeding Rs 20,000 violates 269SS. However, the family context may support a reasonable cause defense under Section 273B.
Are journal entries considered cash transactions under 269SS?
Courts are divided. The Bombay ITAT and several High Courts have held that journal entries are not cash and do not violate 269SS. However, the department has argued otherwise in some cases. The safer practice is to route all loan transactions through bank accounts.
Who can impose the penalty under 271D/271E?
Only the Joint Commissioner of Income Tax or a higher-ranked officer. A penalty order from an Assessing Officer or Deputy Commissioner is invalid.
Can I accept Rs 19,000 in cash from the same person on different days?
Yes, as long as the aggregate outstanding from that person does not reach Rs 20,000. If the total (including unpaid prior amounts) crosses Rs 20,000, it violates 269SS even though each individual receipt was below the threshold.
Does 269SS apply to security deposits paid to landlords?
Yes. A security deposit is a 'deposit' under 269SS. If the tenant pays Rs 50,000 in cash as security deposit, the landlord is in violation. Both parties should use banking channels.
Is there a time limit for the penalty order?
Yes. Under Section 275, the penalty order must be passed before the end of the financial year in which assessment proceedings are completed, or within six months of initiating penalty proceedings, whichever is later.
This guide references Sections 269SS, 269T, 269ST, 271D, 271E, and 273B of the Income Tax Act, 1961. Penalty provisions, thresholds, and ITAT rulings verified against the Income Tax Department portal (incometaxindia.gov.in), TaxGuru, Tax2win, and ClearTax as of June 2026. The reasonable cause examples are drawn from published ITAT and High Court decisions. Readers should consult a tax professional for case-specific advice before responding to a penalty notice.