When Cash Transactions Lead To Penalty: What Section 269SS Means for Taxpayers

Summary

Cash continues to be a preferred mode of dealing in India, whether for daily purchases or even personal loans among friends and family. But what many don’t realise is that certain cash transactions can quickly run into income tax trouble. One such area where people often slip up is Section 269SS of the Income Tax Act, 1961.

From paying household help to lending money to a friend, cash is still central to how Indians transact. Many people find it simpler to hand over notes rather than move money digitally. But the tax laws don’t always look at it that way. There are limits on how much cash you can give or receive, and crossing them can trigger a penalty equal to the transaction itself.

The Rs 20,000 Rule

Section 269SS of the Income Tax Act, 1961, often causes confusion. It prohibits accepting loans, deposits, or advances of Rs 20,000 or more in cash. Any amount at or above this limit must be routed through formal banking channels such as cheque, demand draft, NEFT, RTGS, IMPS, or UPI.

Currently, both life and health insurance premiums attract 18 per cent GST - Canva

GST Reforms: Insurance Stocks Gain As GoM Proposes To Exempt Taxes On Premiums

BY Outlook Money

However, it’s not just about one loan crossing Rs 20,000. Even if you already have a smaller loan outstanding, and a fresh cash amount pushes the total above Rs 20,000, the rule kicks in. For example, if you owe someone Rs 19,000 and later take another Rs 2,000 in cash, it would still be considered a violation.

What would be the consequence for breaching this limit? The penalty for breaking limits set under Section 269SS is 100 per cent of the amount involved. This means that if you have borrowed Rs 50,000 in cash, the tax department can levy a fine of the equal amount.

Repayment Rules

There is a companion rule, Section 269T, which says you cannot repay a loan or deposit of Rs 20,000 or more in cash either. Again, if you do, the fine will match the cash amount repaid.

Income tax burden on senior citizens surges amid no exemptions - AI-Generated

Income Tax Collection From Senior Citizens Surges 137 Per Cent In Five Years

BY Outlook Money

Are there any exceptions?

There are three exceptions to this rule:

If the transaction is with a bank, government body, post office savings bank, or certain notified institutions, the restriction does not apply.
Agricultural income is another carve-out, if both parties earn only agricultural income and don’t have taxable income, cash transactions between them are not subject to these rules.
In emergencies, cash taken from close relatives is usually not penalised, provided it is not a way to escape taxes.

Other Cash Limits

Under Section 269ST, which deals with larger sums, taxpayers are barred from receiving Rs 2 lakh or more in cash from a person in a single day, or even for a single event.

This typically covers things like wedding gifts or large payments. The penalty, again, is equal to the cash received.

Why does the Income Tax Department levy these rules?

The taxmen’s intent behind all this is to make sure big cash movements do not slip under the radar and feed into unaccounted money.

The government has, in recent years, been tightening these rules and reminding taxpayers to avoid large cash transactions, particularly to evade taxes.