Most tax penalties are proportionate to the tax involved. These are not. A business that receives ₹3 lakh in cash from a customer, on a sale on which it has paid every rupee of tax due, can face a penalty of ₹3 lakh — the whole amount received, not the tax on it.
That disproportion is deliberate. These provisions are not aimed at recovering tax; they are aimed at discouraging cash. Understanding them as tax provisions is the reason businesses keep falling into them.
Three provisions, three different targets
The three sections do not overlap neatly, and a transaction can engage more than one.
| Provision | What it restricts | Threshold | Penalty provision |
| Section 269SS | Taking a loan, deposit or specified sum in cash | ₹20,000 | Section 271D |
| Section 269T | Repaying a loan, deposit or specified advance in cash | ₹20,000 | Section 271E |
| Section 269ST | Receiving any sum in cash | ₹2,00,000 | Section 271DA |
Sections 269SS and 269T are about borrowing and repayment. Section 269ST is about receipts of any kind, and it is the broadest of the three.
They sit awkwardly within income tax compliance in India because they are not, in substance, tax provisions at all.
Section 269SS: taking money in
Section 269SS prohibits a person from taking or accepting any loan, deposit or specified sum otherwise than by account payee cheque, account payee bank draft, electronic clearing system through a bank account, or another prescribed electronic mode, where the amount is ₹20,000 or more.
The threshold is tested in three ways, and any one of them triggers the section: the amount of the loan or deposit itself; the aggregate of the amount already outstanding from the same person; or the aggregate of both. A person who has an outstanding balance of ₹18,000 and accepts a further ₹5,000 in cash has crossed the threshold, even though neither figure alone exceeds ₹20,000.
“Specified sum” is the phrase that catches property transactions. It means any sum of money receivable, whether as advance or otherwise, in relation to the transfer of an immovable property, whether or not the transfer takes place. A cash advance against a property sale of ₹20,000 or more is within section 269SS even if the sale never completes.
Certain payers and payees are outside the section — the Government, banking companies, post office savings banks, co-operative banks, corporations established by statute, and other notified entities. There is also relief where both parties have only agricultural income and neither has any income chargeable to tax.
Section 269T: paying money back
Section 269T is the mirror image. No branch of a banking company or co-operative bank, and no other company, co-operative society, firm or person, shall repay any loan or deposit, or any specified advance received by it, otherwise than by the prescribed non-cash modes, where the amount of the repayment — or the aggregate with interest, or the aggregate of outstanding balances from the same person — is ₹20,000 or more.
“Specified advance” mirrors “specified sum”: any sum of money in the nature of an advance received in relation to the transfer of an immovable property, whether or not the transfer materialises.
The symmetry matters. A business that carefully receives every loan by cheque and then repays a departing partner or a family member in cash has complied with section 269SS and breached section 269T.
Section 269ST: the general two lakh ceiling
Section 269ST is the widest of the three and the one most often triggered by ordinary trading.
No person shall receive an amount of ₹2,00,000 or more otherwise than by account payee cheque, account payee bank draft, electronic clearing system through a bank account, or another prescribed electronic mode.
Note what the section does not say. It does not require the receipt to be a loan. It does not require it to be business income. It does not require any tax to be involved. It applies to receipts, full stop, subject to the exclusions.
Transactions covered by section 269SS, and receipts by the Government, banking companies, post office savings banks and co-operative banks, are outside section 269ST, along with other notified persons and receipts.
The section does not distinguish between tax avoidance and tax evasion and a wholly innocent receipt. It restricts the mode of payment and nothing else.
The three limbs of 269ST and why they matter
The prohibition operates in three separate ways, and this is where most breaches occur:
(a) In aggregate from a person in a day. Several receipts from the same person on the same day are added together. Six receipts of ₹40,000 each from one customer on one day is a receipt of ₹2,40,000 and breaches the section.
(b) In respect of a single transaction. One transaction cannot be received in cash if it is ₹2,00,000 or more, even if the receipt is split across several days. A ₹5 lakh sale collected in five instalments of ₹1 lakh over five weeks is a single transaction and breaches the section.
(c) In respect of transactions relating to one event or occasion from a person. This limb catches the situation where several transactions are separately documented but relate to one occasion. Catering, decoration, venue and photography billed separately for one wedding, and received in cash from the same person, are aggregated.
The three limbs together mean that neither splitting an invoice, nor spreading collection over time, nor separating a job into components, avoids the section. Each of those is the specific mischief a limb was drafted to catch.
The penalties
Section 271D — for contravention of section 269SS — is a penalty equal to the amount of the loan or deposit or specified sum taken or accepted.
Section 271E — for contravention of section 269T — is a penalty equal to the amount of the loan or deposit or specified advance repaid.
Section 271DA — for contravention of section 269ST — is a penalty equal to the amount of the receipt.
In each case the penalty is one hundred per cent, and it is imposed on the recipient or the repayer, not on the counterparty. There is no scaling by reference to tax, and the fact that the underlying transaction was entirely genuine and fully taxed is not, by itself, an answer.
Under section 271DA, the penalty is not imposed if the person proves that there were good and sufficient reasons for the contravention. Penalties under sections 271D and 271E are subject to section 273B.
Because the amounts are large and the defence is fact-dependent, these penalties account for a disproportionate share of tax litigation at the first appellate stage.
Reasonable cause under section 273B
Section 273B provides that no penalty under sections 271D and 271E, among others, shall be imposable if the person proves that there was reasonable cause for the failure.
This is a genuine defence, not a formality, and it is where most contested cases are decided. What has historically carried weight includes: a genuine business exigency evidenced contemporaneously; transactions between closely related parties where the genuineness and the identity of the payer are not in doubt; receipts in locations where banking facilities were not available; and situations where the transaction was recorded in the books and offered to tax from the outset.
What does not carry weight is the assertion that the counterparty insisted on cash, or that the amount was small relative to turnover, or that no tax was lost.
The defence depends almost entirely on the record made at the time. A cash receipt entered in the books with the payer identified, the reason noted and the surrounding correspondence retained is defensible. The same receipt discovered during an assessment three years later is not.
This is one of the clearest cases in which disciplined accounting and bookkeeping is itself the defence.
Where businesses get caught
Cash sales in retail and jewellery. A single high-value sale collected in cash breaches limb (b) even if collected over several visits.
Property advances. A token or advance of ₹20,000 or more in cash against a property sale engages section 269SS through the “specified sum” limb, and refund of it engages section 269T.
Director and partner current accounts. Cash introduced by a director or partner, and cash withdrawn against the balance, are routinely treated as loans or deposits.
Family and group transfers. Money moved between family members or group entities in cash, however genuine, is within sections 269SS and 269T once the threshold is crossed.
Event businesses. Weddings, exhibitions and functions, where limb (c) aggregates separately invoiced components.
Journal entries. Adjusting a loan by book entry rather than by banking channel has been the subject of considerable litigation. The position turns on the facts and on whether the transaction is genuinely a repayment in substance, and it should not be assumed either way.
Each of these arises in the ordinary course of business taxation rather than from any attempt to conceal anything.
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