Pay more than Rs 20,000 in cash for these transactions and get ready to pay up to 100% penalty, says tax dept
Sep 10, 2025
Synopsis
The Income Tax Department warns against excessive cash transactions, citing penalties for violations under Sections 271DD, 269SS, 269ST, and 269T of the Income Tax Act, 1961. Exceeding thresholds like Rs 20,000 for loans or Rs 2 lakh for single transactions can attract fines. Read below to know more about what the income tax dept said.
It is no secret that Indians like to use unified payment interface (UPI) and cash for all sorts of transactions, from small purchases to larger ones.But here’s something you might not know: using cash can actually put you at risk for an income tax penalty. According to Section 271DD of the Income Tax Act, 1961 if you break the mandate of not using cash beyond the specified threshold of Rs 20,000, you could face penaltyequal to the cash amount you received.
“Say “NO” TO CASH TRANSACTIONS. Individuals prefer to receive, pay, and transfer cash when the amounts of transactional value (money) involved are marginal to small,” said the Income Tax Department in a brochure released recently.
What does the tax law say if a friend gives another friend a cash loan of Rs 30,000?
Gaurav Jain, Partner – Direct Tax, Forvis Mazars in India, says that the restriction under Section 269SS of the Income-tax Act, 1961 applies equally to personal transactions between individuals, including friends or relatives.
Jain says: “This provision (269SS) mandates that no person shall accept any loan, deposit, or “specified sum” of Rs 20,000 or more other than by way of an account payee cheque, account payee bank draft, or through prescribed electronic modes (such as NEFT, RTGS, UPI, etc.) Accordingly, if a cash loan of Rs 20,000 or Rs 30,000 is accepted, that atrracts the provisions of Section 269SS, and penalty under Section 271D, equal to the amount of loan so accepted (i.e., Rs 20,000 or Rs. 30,000), becomes leviable.”
Check out the information below to learn more about what the income tax department said in the brochure.
Penalty equal to the amount paid via cash will be imposed if caught
In the brochure, the Income Tax Department said the following:
Category A (i)
1. Section 269SS: Taking/accepting certain loans, deposits and specified sums in cash
No person shall accept in cash any loan or deposit or other specified sum if the amount (or aggregate of the amounts) involved total(s) to Rs 20,000 or more. Specified sum means any sum of money receivable, as advance or otherwise, in relation to the transfer of an immovable property whether the transfer takes place or not. The amount or the aggregate amount shall include any cash received earlier and remaining unpaid.
The above mandate does not apply to sums as stipulated accepted from or by-
The Government;
A banking company, post office savings bank or co-operative bank (but not all co-operative societies whether or not involved in banking or related activities);
A corporation established by a Central, State or Provincial Act;
A government company as defined in section 2(45) of the Companies Act, 2013;
A notified institution, association or body (or class of institutions, associations or bodies).
The mandate above is also not applicable if the payer and the payee are both earning agricultural income and neither of them has any income chargeable to tax under the Income Tax Act, 1961.
“The penal consequences of violating the mandate above is imposition/levy on the recipient a penalty under section 271D equal to the amount taken in cash,” said the Income Tax Department.
2. Section 269 ST: Receiving other amounts in cash
No person-whether assessed to tax or not-shall take (receive) in cash any amount(s) totalling 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.
The mandate as above will apply to:
Receipt of fees by educational institutions and hospitals;
Donations by religious institutions;
Transactions between two related persons or where both the payer and the payee are exempt from payment of tax.
The mandate above does not apply to:
Any receipt by the Government or any banking company, the post office savings bank or any co-operative bank (but not all co-operative societies whether or not involved in banking or related activities)
Transactions of the nature referred to in section 269SS;
Persons or class of persons or receipts as separately notified for the purpose.
“The penal consequences of violating the mandate above is imposition/levy on the recipient a penalty under section 271DA is an amount equal to the amount received in cash,” said the Income Tax Department.
3. Section 269T: Repayments of certain loans or deposits
No branch of a banking company or a cooperative bank;
No other company or cooperative society; or
No firm or other person
Will repay in cash any loan or deposit or any specified advance if the amount (or the aggregate amount) involved with the applicable interest totals Rs 20,000 or more
‘Specified advance’ means any sum of money in the nature of advance by whatever name called, in relation to the transfer of an immovable property, whether or not the transfer has taken place.
The aggregate amount shall include amounts held by the person in his own name or jointly with any other person on the date of such repayment.
The mandate as above shall not apply to repayment of any loan or deposit or specified advance taken or accepted from:
The government;
Any banking company, post office savings bank or co-operative bank (but not all co-operative societies whether or not involved in banking or related activities);
Any corporation established by a central, state or provincial act;
Any government company as defined in section 2(45) of the companies act, 2013
Notified institution, association or body or class of institutions, associations or bodies.
“The penal consequences of violating the above mandate is imposition/levy of penalty on the repayer under section 271E an amount repaid in cash,” said the Income Tax Department.
Category A (ii) Provisions of penal nature setting of thresholds for facilitating prescribed electronic modes
1. Section 269SU: Acceptance of payments through prescribed electronic modes
Applicable to every person with a business turnover, sales or gross receipts exceeding Rs 50 crore with exception available only to:
A person:
Having only B2B transactions; and
Whose aggregate of all amounts received through non-cash modes during the previous year, including the amount received for sales, turnover or gross receipts, constitute at least 95% of all amounts received;
An assessee which is 100 percent export-oriented; or
A foreign company carrying on the business in India through a Permanent Establishment (PE)
Needs to mandatorily facilitate the acceptance of payments through prescribed electronic modes (in addition to any facility for payments through other electronic modes) as prescribed by the CBDT which currently are (Refer Rule 6ABBA)
Credit card and debit card;
Net Banking;
IMPS (Immediate Payment Service) and NEFT (National Electronic Funds Transfer);
UPI (Unified Payment Interface) and RTGS (Real Time Gross Settlement), and BHIM (Bharat Interface for Money) Aadhaar Pay.
“Section 271DB: The penal consequences of violating the above mandate is a penalty equal to Rs 5,000 for every day during which such failure continues,” said the Income Tax Department.
Recent Supreme Court directions about using cash for transactions
Chartered Accountant Suresh Surana says that in April 2025, in the case (Civil Appeal No. 5200 of 2025), the Supreme Court noted that the respondents admitted to paying a substantial portion of the consideration in cash and held that this transaction triggers the application of Section 269ST of the Income Tax Act, which prohibits cash transactions of Rs. 2,00,000 or more to curb black money and promote digital payments, with penalties under Section 271DA falling on the recipient.
Although the provision (271DA) mainly focuses on the recipient, the payer is also responsible for disclosing the source of that cash. Recognising the legislative intent to curb high-value cash transactions and bolster the digital economy, the Court further issued the following directions to ensure compliance with cash related transactions:
In any suit involving cash payments of Rs. 2,00,000 or more, the Court must notify the jurisdictional Income Tax Department for verification. Upon such intimation (or information from any source), the Income Tax Authority shall act in accordance with law.
Where a document for conveyance of immovable property reflects cash consideration of Rs. 2,00,000 or more, the Sub-Registrar must inform the jurisdictional Income Tax Authority. If an Income Tax Authority discovers such cash payments during proceedings and finds that the registering authority failed to report them, the lapse must be escalated to the Chief Secretary for disciplinary action against the responsible officer.
Surana points out that this judgment makes it evident how the government and the judiciary keep a cole eye on cash transactions. According to Surana, the Supreme Court hashighlighted that the responsibility does not rest solely on the payer and the receiver but extends to courts and registrars as well.
Surana says: “Furthermore, this judgement underscores that stringent action will be taken against registrars who fail to properly report such transactions.”
[The Economic Times]
