Are there limits on accepting or repaying loans and deposits in cash

Question

A friend wants to lend me a large sum of money in cash and I want to know if there is any legal restriction on this under tax law. Specifically, I want to know how Income-tax Act, 1961, Section 269SS applies to a situation like mine and what the tax law position in India actually is. If there is a deadline I should be aware of, I need to know that now.

MyVakeel Legal Desk · Accepted Answer

Are there limits on accepting or repaying loans and deposits in cash is governed in India primarily by Income-tax Act, 1961, Section 269SS, Income-tax Act, 1961, Section 269T and Income-tax Act, 1961, Section 271D. Outcomes in 269ss cash loan limit disputes depend heavily on documentation, so check what you can actually evidence as you read.

Section 269SS of the Income-tax Act, 1961 prohibits accepting a loan, deposit, or specified sum in relation to transfer of immovable property, in cash, if the amount is twenty thousand rupees or more, requiring such transactions to be conducted through an account payee cheque, account payee bank draft, or electronic clearing system, or other prescribed electronic modes.

Section 269T similarly prohibits repayment of a loan or deposit in cash where the amount, including interest, is twenty thousand rupees or more, again requiring repayment through an account payee cheque, draft or electronic mode, and this restriction applies regardless of whether the original loan was itself taken in cash or otherwise.

Violation of Section 269SS or 269T attracts a penalty under Sections 271D and 271E respectively, equal to the amount of the loan or deposit accepted or repaid in contravention, and this penalty is levied on the person accepting or repaying the cash, not merely a disallowance of expenditure, making it a significant and near-automatic exposure once the cash transaction is discovered.

Certain exceptions exist, such as transactions between government entities, banking companies, and specified categories where both parties are agriculturists with no other taxable income, but a private loan between individuals for a personal purpose does not fall within these exceptions, so any amount of twenty thousand rupees or more should be routed through a bank rather than accepted or repaid in cash.

What this means for you: 1) Insist on receiving or repaying any loan of twenty thousand rupees or more through a bank channel; 2) Avoid splitting a single transaction into smaller cash amounts to evade the limit; 3) Document any genuine loan through a simple loan agreement; 4) Consult a tax professional if a cash transaction has already occurred in contravention.

Where the facts are disputed, what usually decides a 269ss cash loan limit matter is the paper trail — dated complaints, acknowledgments and written replies under Income-tax Act, 1961, Section 269SS. You can post the details on the MyVakeel forum for a practising advocate to review, or book a paid consultation with a Bar Council verified lawyer in tax law.