Strict Income Tax Rules on Cash Transactions: Avoid Hefty Penalties

New Delhi: Cash transactions (Cash Transactions) still outnumber digital transactions (Digital Transactions) in the country. To encourage people to switch to digital payments, the Income Tax Department has taken significant measures. Strict restrictions have been imposed on large cash transactions, and penalties of up to 100% have been announced for certain types of transactions.

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Under Section 269ST and other provisions of the Income Tax Act, exceeding the prescribed limit for cash transactions may result in notices and heavy penalties. With the 2025-26 financial year’s income tax return filing deadline set for July 31, it is essential to understand the cash transactions that could incur penalties of up to 100%.

Key Restrictions on Cash Transactions:

1. Loans, Deposits, or Advances:
   Cash transfers exceeding ₹20,000 for loans, deposits, or advances are prohibited. Violating this rule under Section 269SS may result in a penalty equal to the amount transacted.
2. Bank Withdrawals:
   Cash withdrawals exceeding ₹2 lakh from a bank in a single day are not allowed. Under Section 269ST, such violations attract a penalty equal to the excess amount withdrawn.
3. Repayment of Loans or Deposits:
   Repayments of loans or deposits must not exceed ₹20,000 in cash. Payments beyond this limit are subject to a 100% penalty under Section 269T.
4. Business Transactions:
   Cash payments for business purposes must not exceed ₹10,000. Violations under Section 40A(3) will lead to penalties.
5. Donations:
   Donations in cash exceeding ₹2,000 are not allowed under Section 80G of the Income Tax Act. Such donations will not be eligible for tax exemptions, and penalties may also apply.

Citizens are advised to adopt digital payment methods and adhere to these rules to avoid financial penalties and other legal consequences.