Cash Transactions Rule: Could using cash land you in trouble? According to the Income Tax Act, if you transact more than Rs 20,000 in cash, you may have to pay a fine.
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Cash Transactions Rule: If you make a cash transaction of more than 20,000 rupees, you could be in big trouble. The Income Tax Department could tighten its grip on you. According to Section 271DD of the Income Tax Act, 1961, if you make a cash transaction of more than 20,000 rupees, you could be fined the same amount as the cash you received or gave. According to the Economic Times, the Income Tax Department has advised against cash transactions in a brochure.
What if a friend lends you money in cash?
If a friend gives you a cash loan of ₹30,000, tax laws still apply. Experts say Section 269SS of the Income Tax Act, 1961, also applies to private transactions between friends and relatives.
According to this section, no individual can take a loan, deposit, or other payment of ₹20,000 or more in cash. It can only be taken through an account-payee check, account-payee bank draft, or electronic modes such as NEFT, RTGS, or UPI. Taking a cash loan of ₹20,000 or ₹30,000 violates Section 269SS. This attracts a penalty under Section 271D, which is equal to the loan amount. Thus, if you give ₹30,000 in cash, you will be fined ₹30,000.
What are the Income Tax rules regarding cash?
1. Section 269SS: Loans, Deposits, and Certain Amounts in Cash
No person may receive or accept cash in excess of ₹20,000 as a loan, deposit, or for any other purpose. This amount includes cash previously borrowed and not yet repaid.
These rules do not apply to:
- Any bank, post office savings bank, or co-operative bank (but not all co-operative societies, whether engaged in banking or allied activities or not).
- Any corporation formed under a Central, State, or Provincial Act.
- Any government company specified in Section 2(45) of the Companies Act, 2013.
- Any notified institution, association, or body (or group of institutions, associations, or bodies).
- These rules also do not apply if both the giver and the taker earn income from agriculture and neither of them has income chargeable to tax under the Income Tax Act, 1961.
2. Section 269ST: Accepting Other Money in Cash
No person, whether tax-paying or non-tax-paying, can accept in cash an amount of ₹2 lakh or more. This ₹2 lakh refers to the amount collected from any one person in a single day, in a single transaction, or from any one person for a single event or occasion.
These rules do not apply to
- Any amount collected by the government or any bank, post office savings bank, or any co-operative bank (but not all co-operative societies, whether engaged in banking or related activities or not).
- Transactions specified in Section 269SS.
- Any person or group of persons or receipts issued by a person who has been notified separately.
Supreme Court’s Opinion on Cash Transactions
Chartered Accountant Suresh Surana explains that in April 2025, the Supreme Court ruled that any cash transaction exceeding ₹2 lakh would violate Section 269ST of the Income Tax Act and would be subject to a penalty under Section 271DA.
While this rule applies mostly to borrowers, lenders must also disclose the source of the cash. The court stated that it is essential for everyone to follow the rules to prevent excessive cash transactions. If a cash transaction exceeds ₹2 lakh, the court must inform the Income Tax Department so they can investigate.
