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. I have been reading conflicting things online and I would like to understand what Indian law actually says about this, which Act and Section applies, what the realistic timelines and costs are, and what I should be doing right now to protect my position. If the matter can be resolved without litigation I would prefer that route, but I want to know what my rights are before I agree to anything or sign any document.

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. The short answer is set out below, followed by the practical steps most people in this situation need to take. Read it alongside the specific provisions named, because the exact relief available to you turns on the facts you can prove on paper.

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 to do next: 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.

If the other side has already issued a notice, filed a case or set a deadline, treat the matter as time-sensitive — most remedies under Income-tax Act, 1961, Section 269SS carry limitation periods, and a delay you cannot explain weakens an otherwise strong case. 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 this practice area.