Receipt of more than 20k in cash is not illegal or an offence when proper proof of payment is available. Surinder Singh V/s State of Himachal Pradesh - Negotiable Instrument Act, 1881- Section 138 of N.I.Act - Income Tax Act. 1961 - Sec.269SS - of income Tax Act only provides mode of acceptance of payment or repayment - But provision does not declare transaction illegal or null and void. 

This is now a established law. 

Section 269SS & Section 269T deal with cash payment and repayment of loans and deposits.

2) any repayment of cash amount will attract penalty equivalent to cash amount 

The Finance Act 2017, took various measures to restrain black money and as an outcome of these measures, a new Section 269ST was inserted in the Income Tax Act. Section 269ST imposed restriction on a cash transaction and limited it to Rs.2 Lakhs per day. Section 269ST states that no person shall receive an amount of Rs 2 Lakh 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.
•  
• Section 269SS prohibits a taxpayer from taking/accepting loans or deposits or a sum of more than Rs.20,000 in cash. All loans and deposits of more than Rs.20,000 must always be taken through a banking channel. Section 269SS of the Income Tax Act is however not applicable when accepting/taking loan or deposit from a person or entity mentioned below:

  • Government;
  • Any banking company, post office saving bank or co-operative bank;
  • Any corporation established by a Central, State or Provincial Act
  • Any Government company as defined in clause (45) of section 2 of the Companies Act, 2013
  • An institution, association or body or class of institutions, associations or bodies notified by Central Government in the official gazette.

  Finally, if the person from whom the loan or deposit is taken and the person by whom the loan or deposit is accepted, are both having agricultural income and neither have any income taxable under Income Tax Act, then the provisions of Section 269SS will not apply.

It should not increase the per day bracket of 20000

Dear Client,

Section 269SS of the Income Tax Act prohibits any person from taking or accepting loans or deposits exceeding Rs. 20,000 in cash. The provision is aimed at curbing the use of cash transactions and promoting digital payments. The section applies to both individuals and businesses, and violating it can result in penalties.

However, in your case, it seems like the situation is a bit different. You mentioned that the vendor returned a part of the advance payment in cash because the material was not delivered as per your instruction. This situation might not strictly fall under the definition of loans or deposits as intended by Section 269SS.

Loan or deposit generally implies a lending or depositing of money for a certain period with an expectation of repayment with or without interest. In your case, the vendor is returning a portion of the advance payment that was intended for raw materials, and it seems more like a refund or adjustment due to the non-delivery of goods rather than a loan or deposit.

Yes, Sec 269ss also speaks about " Any specific amount"