If you transact more than 20 thousand rupees in cash, then you can get into big trouble. Income tax can tighten its grip on you. According to section 271DD of the Income Tax Act, 1961, if you transact more than 20,000 rupees in cash, then you can be fined as much as you have taken or given in cash. According to the Economic Times, the Income Tax Department has said in a brochure not to do cash transactions.

What will happen if a friend lends you cash?

If a friend of yours gives you a cash loan of Rs 30,000, then the tax law will also be applicable. According to experts, section 269SS of the Income Tax Act, 1961, also applies to private transactions between friends and relatives.

According to this section, no person can take a loan, deposit, etc. of Rs 20,000 or more in cash. It can only be taken through an account payee cheque, an account payee bank draft, or electronic mode like NEFT, RTGS, UPI, etc. If someone takes a cash loan of Rs 20,000 or Rs 30,000, then section 269SS is violated. A penalty is imposed on this under section 271D, which is equal to the loan amount. That is, if 30 thousand is given in cash, then a penalty of 30 thousand will be imposed.

What are the income tax rules related to cash?

1. Section 269SS: Taking/giving a loan, deposit, and a certain amount in cash

No person can take more than Rs 20,000 in cash for a loan, deposit, or any other purpose. This amount will also include the cash that was taken earlier and has not been repaid yet.

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 as 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 receiver are earning their income from agriculture and neither of them has income chargeable to tax under the Income Tax Act, 1961.

2. Section 269ST: Acceptance of other amount in cash

No person, whether a payer or a payee, can accept Rs 2 lakh or more in cash. This amount of Rs 2 lakh means any amount collected from any one person in a day, for any one transaction, or from any one person for any one 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 or not engaged in banking or related activities).

Transactions mentioned in section 269SS.

Any person or group of persons or receipts that have been separately notified.

Supreme Court's opinion on transactions in cash

Chartered accountant Suresh Surana says that in April 2025, the Supreme Court said that if a person transacts more than Rs 2 lakh in cash, then it is a violation of section 269ST of the Income Tax Act. And he will be fined under section 271DA.

Although this rule mostly applies to the loan taker, the loan provider will also have to tell where the loan taker earned this cash from. The court has said that to stop excessive transactions in cash, it is important that everyone follows the rules. If there is a cash transaction of more than Rs 2 lakh, then the court will have to inform the Income Tax Department so that they can investigate.

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