Cash Transaction Limitation: Cash Payment of More Than 2 lakh is illegal, Key Details Inside

Under Section 269ST of the Income Tax Act, accepting Rs 2 lakh or more in cash, even in instalments, can attract a 100 per cent penalty. This means you could lose everything you have gained.

Even today, cash is accepted in many places in India. Especially in real estate, business deals and social work, cash is used a lot. But if you cross some limits in cash transactions, you may have to lose everything.

Financial advisors and tax experts have warned via social media that large cash transactions can lead to harsh penalties under Indian tax laws. A recently viral post shows how easy it is to break the rules and the consequences can be brutal.

100% penalty can be levied

In a post on X (formerly Twitter), CA Nitin Kaushik wrote, ‘If you accept more than ₹ 2 lakh in cash, you can lose everything! Do you think you can get away with it by making payments through different modes? Then think again! Under Section 269ST of the Income Tax Act, accepting ₹ 2 lakh or more in cash, even if in installments, can attract a penalty of 100 percent. This means that you can lose everything you have received.’

CA explained how the rule works? 

• One day limit: Receiving more than ₹2 lakh cash in a day will be considered a violation of the rules. Example: ₹1.5 lakh received in the morning and ₹1 lakh in the evening? If the total is ₹2.5 lakh, then the fine will be only ₹2.5 lakh. 
• Splitting the payment on a daily basis? This doesn’t help. Example: Selling a plot for ₹3 lakh and taking ₹1 lakh daily for three days, this too will be considered illegal. 
• Wedding and event expenses are counted as one transaction. Example: ₹1.5 lakh for catering + ₹1 lakh for decoration = ₹2.5 lakh penalty will be imposed. 

Citing a real case, he said, “A seller received ₹5 lakh every month for six months for a property deal. Each payment was less than ₹2 lakh but the total was ₹30 lakh. The final penalty was ₹30 lakh.”

How to avoid paying a fine?

Never accept a cash transaction of more than Rs 2 lakh. No matter how you distribute it. Avoid large cash transactions in business, property or events. Transactions should be accepted only through bank transfer, UPI or digital payment. Many people unknowingly break this rule and then have to pay a heavy price.