Section 269ST — Cash Transaction Limit of ₹2 Lakh and Penalty for Violation

Section 269ST of the Income Tax Act prohibits any person from receiving an amount of ₹2 lakh or more in cash in a single day from a single person, in respect of a single transaction, or in respect of transactions relating to one event or occasion. The objective is to discourage cash transactions and promote a less-cash economy. Violation attracts a 100% penalty.

Three-Limb Test — Any One Triggers the Provision

• Limb 1 — Single transaction: Cannot receive ₹2 lakh or more in cash from one person in a single transaction (e.g., one sale of goods, one service rendered)
• Limb 2 — Single day from one person: Cannot receive ₹2 lakh or more in cash from the same person in a single day (even if in multiple small transactions)
• Limb 3 — One event or occasion: Cannot receive ₹2 lakh or more in cash relating to one event or occasion from one person (even if spread across multiple days)

The provision applies to the recipient of cash — not the payer.

Penalty — Section 271DA

• Penalty equal to the amount received in cash (100% of the amount) — imposed on the receiver
• The AO can impose the penalty; no prosecution but a significant financial penalty
• No reasonable cause exception is explicitly provided — strict liability provision

Exceptions to Section 269ST

• Receipts by the Central or State Government
• Receipts by any banking company, post office savings bank or co-operative bank
• Transactions of the nature referred to in Section 269SS (which already restricts cash loans/deposits above ₹20,000)
• Persons or class of persons or receipts notified by the Central Government

Practical Impact — Key Business Scenarios

• A property seller receiving ₹5 lakh cash for stamp duty payment (even if in parts from the same buyer in a day) — penalty ₹5 lakh
• A retailer receiving ₹2.5 lakh cash for one invoice — penalty ₹2.5 lakh
• Wedding caterer receiving ₹3 lakh cash for one wedding booking — penalty ₹3 lakh
• Split payments across different family members or different days from same occasion can still trigger Limb 3

Conclusion

Section 269ST's 100% penalty is one of the stiffest in income tax law — and applies to everyday business transactions. Businesses must train staff to accept only digital payments for amounts near or above ₹2 lakh. SPOTON provides cash transaction compliance training and income tax advisory for businesses across Kerala. Contact us for expert tax compliance services.