“Cash Flows Like Sand, But Section 269ST Holds Tight, Curbing Black Money, Shining India’s Light
Introduction
Previously, Section 269ST of The Income Tax Act, 1961 was not part of the original draft. This provision was introduced in the Finance Act 2017 and came into effect from April 1st 2017. This is aiming to curb black money and promote digital payments.
With laws like Section 269ST, the Govt is tackling unaccounted wealth, promoting transparency, and building a cleaner economy. From demonetisation to digital push, the drive for a cashless, corruption-free nation is on.
This was enacted to promote a transparent, digital economy, Section 269ST prohibits any person from receiving ₹2 lakh or more in cash under three scenarios: a single payment, aggregate daily receipts from one source, or linked transactions totaling over the limit.
This builds on earlier provisions like Sections 269SS and 269T, which targeted loans/deposits.
Prohibition on Cash Receipts of ₹2 Lakh or More
- Receiving ₹2 lakh or more in cash in a single payment
- Aggregate daily receipts from one source amounting to ₹2 lakh or more
- Linked transactions totaling over the prescribed limit
Primary Object And Scope
The provision targets unaccounted cash flows that fuel tax evasion and illicit activities, building on demonetization efforts to reduce black money circulation in sectors like real estate and business.
It mandates digital or cheque payments for high-value receipts to enable tax authorities to monitor and verify funds effectively.
No person—individuals, businesses, or professionals—can receive ₹2 lakh or more in cash via a single transaction, daily aggregate from one source, or event-related payments, preventing splitting to evade limits.
Applicability and Limited Exclusions
This universal applicability fosters accountability across transactions, excluding only banks, government bodies, and post offices.
Summary of Scope and Coverage
| Aspect | Description |
|---|---|
| Purpose | To curb black money and promote a transparent, digital economy |
| Cash Limit | ₹2 lakh or more |
| Covered Transactions | Single payment, daily aggregate from one source, or linked transactions |
| Persons Covered | Individuals, businesses, and professionals |
| Exclusions | Banks, government bodies, and post offices |
Overview of Section 269ST of The Income Tax Act, 1961
269ST. Mode of undertaking transactions.— No person shall receive an amount of two lakh rupees or more—
- in aggregate from a person in a day; or
- in respect of a single transaction; or
- in respect of transactions relating to one event or occasion from a person, otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account:
Provided That the Provisions of This Section Shall Not Apply To—
- any receipt by—
- Government;
- any banking company, post office savings bank or co-operative bank;
- transactions of the nature referred to in section 269SS;
- such other persons or class of persons or receipts, which the Central Government may, by notification in the Official Gazette, specify.
Explanation.—For the Purposes of This Section,—
- “banking company” shall have the same meaning as assigned to it in clause (i) of the Explanation to section 269SS;
- “co-operative bank” shall have the same meaning as assigned to it in clause (ii) of the Explanation to section 269SS.
Analysis
What Is “Transaction”?
Transaction simply means an exchange or deal between two parties, involving money, goods, or services. It can be:
- Cash transactions (cash payments).
- Digital transactions (online payments).
- Exchange of goods/services.
In context of Section 269ST, it refers to receiving cash above ₹2 lakhs in a transaction or related transactions.
Let’s break down Section 269ST(1) with some spice:
“No person shall receive an amount of ₹2 lakh or more”
Clause (a): In Aggregate From a Person in a Day
Example – If someone pays you ₹1.5 lakh cash + ₹1 lakh cash on the same day, it triggers section 269ST.
Clause (b): In Respect of a Single Transaction
Example – If you sell a car for ₹5 lakh and receive cash, it’s a single transaction ₹2 lakh, Hence section 269ST applies.
Clause (c): In Respect of Transactions Relating to One Event or Occasion
Example: Wedding expenses where you receive ₹3 lakh cash from one person for venue booking, catering, etc., all part of “one event”.
Let’s suppose X sells his old car to Y for ₹3 lakh. Y pays ₹3 lakh in cash to X in a single transaction. Transaction value is ₹2 lakh, Single transaction, triggers Section 269ST.
Impact
X (recipient) might face 100% penalty (₹3 lakh) under section 271DA of The Income Tax Act, 1961.
If Y had paid ₹1.5 lakh cash on Monday and ₹1.5 lakh cash on Tuesday, it wouldn’t trigger section 269ST (different days).
All clauses aim to curb cash dealings and promote digital payments.
Exceptions
Exception (a): Government
Transactions with Govt. entities aren’t covered.
- Paying ₹5 lakh cash to Govt. for property registration.
- Paying ₹10 lakh cash to Govt. for property stamp duty.
- Receiving ₹5 lakh cash refund from Income Tax.
Exception (b): Dept. / Banks / Post Offices
Transactions with banks or post offices exempt.
- Depositing ₹3 lakh cash in SBI bank account.
- Withdrawing ₹2.5 lakh cash from HDFC Bank ATM.
Exception (c): Loans / Deposits / Advances
Covered under §269SS, not Section 269ST.
- Receiving ₹5 lakh cash loan from a friend.
- Receiving ₹5 lakh cash loan from a friend.
- Taking ₹ lakh advance cash for a business deal.
Exception (d): Specified Entities
Like RBI, Govt. bodies, etc.
- Receiving ₹10 lakh cash from RBI for a Govt. project.
- Paying ₹5 lakh cash to a Govt. undertaking for services.
Judicial Interpretation
1. RBANMS Educational Institution vs. B. Gunashekar
(Civil Appeal No. 5200 of 2025 (arising out of SLP (C) No. 13679 of 2022), decided by the Supreme Court of India on April 16, 2025.)
The Court highlighted that Section 269ST prohibits receipt of ₹2 lakh or more in cash (single day, single transaction, or same event). However, it clarified that the provision does not apply to property-related advances, which fall under Section 269SS. The Court mistakenly quoted Section 269ST instead of Section 269SS for a ₹75 lakh cash advance, noting the error but stressing the policy intent to curb black money.
2. Delhi High Court in Birmala Projects (P.) Ltd. v. Ashwani Ahluwalia
2025 SCC OnLine Del 1119.
Ruling that a violation of Section 269ST does not automatically render a contract void. The penalty under Section 271DA (100% of cash received) applies to the recipient, not the payer. The Court treated the breach as a fiscal penalty, not a basis for contract nullity.
3. ITAT Cases: Karan Gupta vs. ITO; Meenakshi Overseas vs. ITO
(2017) 395 ITR 677 (Del).
Consistently upheld disallowance / penalty under Section 271DA when cash receipts ₹2 lakh were received in a day or single transaction, rejecting arguments of “emergency” or lack of evidence. Penalty is 100% of the cash amount received under Section 271DA. The Courts focus on penal intent, not contract invalidity; mis-citation (269ST vs 269SS) noted as “per incuriam” in some judgments.
Conclusion
As a legal professional navigating India’s evolving tax landscape, Section 269ST stands as a robust yet pragmatic tool—empowering enforcement against illicit flows while nudging everyday commerce toward efficiency. Embracing it not only ensures compliance but fortifies economic integrity for sustainable growth.
Businesses and individuals must verify payment modes upfront to avoid penalties under Section 271DA, equal to the violated amount, though courts may waive them for proven good faith or recorded genuine deals. Exceptions apply to government entities or bank-accounted receipts, easing compliance for legitimate activities.
