Comprehensive FAQ on Cash Expenditure Disallowance and Cash Transaction Limits

The Income Tax Act 1961 prescribes several restrictions on cash dealings in business and personal finance. These rules affect how loans and deposits can be accepted or repaid, how large cash receipts are handled, how business expenses are claimed, and when businesses must offer digital payment options.

This FAQ-style guide explains, in a consolidated manner, the working of Section 40A(3), Section 269SS, Section 269ST, Section 269SU, and Section 269T, along with the associated penalty provisions in Section 271D, Section 271DA, and Section 271DB. It also covers the notified electronic modes under Rule 6ABBA and special relaxations for Primary Agricultural Credit Societies (PACS) and Primary Co-operative Agricultural and Rural Development Banks (PCARD).

FAQs on Disallowance of Cash Expenses and Cash Transaction Restrictions

Q1. What does Section 269T deal with?

Section 269T regulates how certain sums can be repaid. It bars any person from repaying:

  • any loan,
  • any deposit, or
  • any specified advance

otherwise than through:

  • an account payee cheque, or
  • an account payee bank draft drawn in the name of the original lender/depositor/advancer, or
  • an electronic clearing system through a bank account, or
  • other electronic modes notified under Rule 6ABBA.

In essence, if repayment reaches specified monetary thresholds, cash or other non‑prescribed modes cannot be used.

Q2. Which types of repayments are covered by Section 269T?

Section 269T applies when the assessee repays:

  1. Loans and deposits of money

    • This includes any loan or deposit that is repayable on notice or after a specified period.
    • For persons other than companies, it covers loans or deposits of any nature.

  2. Specified advance relating to immovable property

    • Any sum received as an advance, or otherwise, in connection with the transfer of immovable property is covered.
    • The restriction applies whether or not the transfer of the immovable property eventually takes place.

Q3. What is the monetary penalty for violating Section 269SU?

Non-compliance with Section 269SU attracts a daily penalty. If a person fails to put in place the prescribed electronic payment acceptance facilities, Section 271DB levies a penalty of Rs. 5,000 for each day the default continues.

Q4. Are there any situations where Section 269T does not apply?

Yes. Section 269T permits repayment in cash or other non-prescribed modes in specific cases. There is no bar on repaying any loan, deposit or specified advance taken from:

  • the Government;
  • any banking company, post office savings bank, or co-operative bank;
  • any corporation established by a Central, State, or Provincial Act;
  • any government company as defined in section 2(45) of the Companies Act, 2013; or
  • any institution, association, or body (or a class thereof) that the Central Government may notify.

Repayments to or from these exempt entities fall outside Section 269T.

Q5. What is the threshold limit triggering Section 269T?

Section 269T is attracted only when the amount being repaid crosses specific limits. It gets triggered if:

  1. The amount of the particular loan, deposit, or specified advance together with interest payable thereon is Rs. 20,000 or more; or

  2. The aggregate of all loans or deposits of a person (held in the assessee’s own name or jointly with others) outstanding on the date of repayment, plus interest thereon, reaches Rs. 20,000 or more; or

  3. The aggregate of all specified advances received (in own name or jointly), outstanding at the time of repayment, plus interest thereon, amounts to Rs. 20,000 or more.

Special enhanced threshold for PACS/PCARD from 01.04.2023
Where a deposit is repaid by a Primary Agricultural Credit Society (PACS) or a Primary Co-Operative Agricultural and Rural Development Bank (PCARD) to its member, or a member repays a loan to such PACS or PCARD, the limit of Rs. 20,000 is increased to Rs. 2 lakhs. This change has been introduced by the Finance Act, 2023 with effect from 01.04.2023.

Q6. What are the ‘prescribed electronic modes’ for Sections 40A(3), 269SS, 269ST, 269SU, and 269T?

Under Rule 6ABBA, the following digital payment options qualify as “prescribed electronic modes” for these sections:

  • Credit Card
  • Debit Card
  • Net Banking
  • IMPS (Immediate Payment Service)
  • UPI (Unified Payment Interface)
  • RTGS (Real Time Gross Settlement)
  • NEFT (National Electronic Funds Transfer)
  • BHIM (Bharat Interface for Money) Aadhaar Pay