Income Tax: Cash Transactions Above These Limits Can Hit You With A Cent Per Cent Penalty

Cash is king for most Indians still, but only a few know that some of these transactions in cash could get them into tax troubles. From daily expenses to other large purchases, the ease of cash beats going out of the way for digital transactions. But beware, some of these transactions could get you into trouble with the Income Tax Department.

The government has been cracking down on large cash dealings, and violating certain thresholds can result in steep penalties, sometimes equal to the entire cash amount involved.

Here’s what you need to know to avoid an unnecessary financial hit:

1) Taking or Giving Loans in Cash (Section 269SS)

Ever borrowed or lent money in cash? If the amount is Rs 20,000 or more, you could be in violation of the law. According to Section 269SS of the Income Tax Act, 1961, no person is allowed to accept a loan, deposit, or advance of Rs 20,000 or more in cash.

What is the penalty in this case? If caught, you may have to cough up a fine which will be equal to the amount of transaction under Section 271D. So, for instance you took a cash loan of Rs 50,000, you may end up paying a penalty of Rs 50,000.

The exception to this rule does not apply to transactions that involve banks, government bodies, or notified financial institutions.

2) Receiving Cash Above Rs 2 lakh

The Section 269 ST of the I-T Act prohibits people from receiving an amount of Rs 2 lakh or more in cash in a day. For instance, it could be a problem if you receive a gift or payment of over Rs 2 lakh in cash from a friend, a business partner, or even a wedding shagun.

This rule prohibits you from taking Rs 2 lakh or more cash from a single person in a day or even for a single event or occasion.

The penalty under Section 271DA for this is equal to the amount received in violation. For example, if you accept Rs 3 lakh in cash, you’ll have to pay Rs 3 lakh as a penalty.

There are very few exceptions to this rule. It applies to businesses, hospitals, educational institutions, and even donations to religious institutions. So think twice before making a big cash deposit at a temple or school.

3) Repaying Loans or Deposits in Cash

You might think that repaying a loan in cash might be harmless, but the rules say otherwise. If the amount paid in cash exceeds Rs 20,000, it would be considered illegal.

Under Section 269T, loan or deposit repayments have to be made through banking channels.

The penalty for violating this will attract a fine equal to the amount repaid under Section 271E. So, repaying a Rs 30,000 loan in cash means you’ll pay another Rs 30,000 in penalties.

However, this rule does not apply to repayments made to banks, government institutions, or financial institutions.

4) For Businesses

The government is going all out for digital transactions in order to minimise tax evasion and black money within the country. If you have a business with a turnover of Rs 50 crore or higher, you may have to offer digital payment modes such as Unified Payments Interface (UPI), NEFT, or RTGS.

Those who default on this would have to pay a penalty of Rs 5,000 per day under Section 271DB.

Why Such Tight Rules For Cash?

The Income Tax Department issued a fresh reminder in January 2025 regarding this to urge taxpayers to limit their use of cash in their daily transactions. The idea behind this was to reduce the risks of unaccounted money in the economy and discourage huge cash transactions.

The rules are important to know as these would help taxpayers to avoid penalties and know which kinds of cash transactions could catch the eye of the Income Tax Department.