Pay More Than Rs 20,000 in Cash? Get Ready for a 100% Penalty, Warns Tax Department
New Delhi: The Income Tax Department has issued a fresh warning against high-value cash transactions, reminding citizens that violating limits set under the Income Tax Act can result in penalties equal to the amount received in cash.
According to the department, any loan, deposit, or advance of Rs 20,000 or more must not be accepted in cash. Instead, such payments should be routed through account payee cheques, bank drafts, or digital channels such as NEFT, RTGS, and UPI. Failure to follow these rules can attract a penalty under Section 271D of the Income Tax Act, 1961, which equals the amount received.
Personal Transactions Also Covered
Gaurav Jain, Partner – Direct Tax at Forvis Mazars in India, explained that the restrictions under Section 269SS apply even to personal dealings between friends or relatives. For instance, if a friend gives another a cash loan of Rs 30,000, the recipient could face a penalty of Rs 30,000.
Cash Limit of Rs 2 Lakh for Other Transactions
The department also highlighted Section 269ST, which prohibits receiving Rs 2 lakh or more in cash:
- From a single person in a day,
- In a single transaction, or
- For multiple transactions linked to one event or occasion.
Violations attract penalties under Section 271DA, again equal to the amount received in cash.
Repayment Restrictions
Similarly, Section 269T prohibits repaying loans, deposits, or advances of Rs 20,000 or more in cash. Violators face penalties under Section 271E.
Businesses Must Enable Digital Payments
The law also mandates that businesses with turnover above Rs 50 crore must provide facilities for prescribed electronic modes such as UPI, IMPS, NEFT, and debit/credit cards. Non-compliance can result in daily fines of Rs 5,000 under Section 271DB.
Supreme Court’s Strict View
In a recent ruling (April 2025, Civil Appeal No. 5200 of 2025), the Supreme Court upheld that cash payments of Rs 2 lakh or more violate Section 269ST. The Court directed that such transactions must be reported to the Income Tax Department by registrars and courts. It also warned of disciplinary action against officials who fail to report them.
Key Message from the Tax Department
In its brochure, the department urged citizens to “say no to cash transactions,” emphasizing that digital modes are safer, transparent, and free from penal risk.
