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The Income Tax Department has tightened rules on cash transactions to curb black money, including limits on cash acceptance, loans, repayments, and donations.
7 Cash Rules You Must Know: Violating These Can Attract 100% Penalty or TDS
7 Cash Rules: The Income Tax Department has tightened rules around cash transactions to ensure transparency and curb black money. Here are 7 key cash-related provisions under the Income Tax Act, which every individual and business owner must know — or risk heavy penalties.
According to TaxBuddy.com, these sections of the Income Tax Act are often overlooked but carry strict consequences:
Section 269ST
You cannot accept Rs 2 lakh or more in cash:
- From one person in a single day
- For a single transaction
- For a single occasion or event
Penalty: 100% of the amount received (Section 271DA).
Section 269SS
Cash loans, deposits, or advances of Rs 20,000 or more are prohibited.
Even if a friend lends you Rs 25,000 in cash during an emergency, it qualifies as a violation.
Penalty: Equal to the amount accepted (Section 271D).
Section 269T
- Loan, deposit, or advance repayment in cash is restricted if the amount is Rs 20,000 or more.
- Whether repaid to an NBFC, bank, or friend, it must be done digitally.
Penalty: Equal to the repaid amount (Section 271E).
Section 40A(3)
Businesses cannot claim deductions for cash expenses exceeding Rs 10,000 per person per day (Rs 35,000 for transporters).
This disallows the expense for tax computation, leading to higher taxable income.
Section 80G
Cash donations above Rs 2,000 are not eligible for tax deductions.
Only donations via bank channels (cheque, UPI, bank transfer) qualify.
Section 80D
Cash payment of health insurance premiums is not eligible for deduction.
However, up to Rs 5,000 spent on preventive health check-ups in cash is allowed.
For an emergency, Rahul took a loan of ₹1,20,000 from his friend in cashNow an income-tax penalty of ₹1,20,000 looms over him🤯
Dealing in cash? Please BEWARE. Here are income-tax penalties that you may be exposed to🧵👇
— TaxBuddy.com (@TaxBuddy1) August 7, 2025
Section 194N
Banks will deduct TDS on large cash withdrawals:
- 2% if annual withdrawal exceeds Rs 1 crore
- 5% if no ITR filed for 3 years and withdrawal exceeds Rs 20 lakh
Taxpayers must ensure compliance with these cash rules to avoid steep penalties or TDS deductions.
Varun Yadav is a Sub Editor at News18 Business Digital. He writes articles on markets, personal finance, technology, and more. He completed his post-graduation diploma in English Journalism from the Indian Inst…Read More
Varun Yadav is a Sub Editor at News18 Business Digital. He writes articles on markets, personal finance, technology, and more. He completed his post-graduation diploma in English Journalism from the Indian Inst… Read More
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