New Delhi: The Income Tax Department has once again cautioned people against making high-value cash transactions, as breaking the rules can lead to a penalty equal to the amount involved. In urgent situations, borrowing cash from friends or family might feel like the quickest solution. That’s exactly what happened with Rahul, who took Rs 1.2 lakh in cash from a friend to meet an emergency only to later discover that this “friendly help” could end up costing him the same amount in fines.
TaxBuddy, a tax advisory platform, recently shared Rahul’s story to caution others. His case is far from uncommon as many people don’t realise that large cash transactions, even with friends, can invite steep penalties. Posting on X, it wrote, “For an emergency, Rahul took a loan of 1,20,000 from his friend in cash. Now 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.”
As per Section 269SS of the Income Tax Act, taking Rs 20,000 or more in cash as a loan, deposit, or advance is not allowed. If you break this rule, Section 271DA imposes a penalty equal to the entire amount — which, in Rahul’s case, means Rs 1.2 lakh.
Other Important Cash Transaction Rules You Should Know
Section 269ST – You can’t receive Rs 2 lakh or more in cash from a single person in one day, or for a single transaction/event. Violation can lead to a penalty equal to the cash received.
Section 269T – Repaying a loan or deposit of Rs 20,000 or more in cash can also invite a penalty.
Business cash payments – Paying over Rs 10,000 in cash to a person in a single day means you can’t claim that expense as a tax deduction.
Donations – Cash donations above Rs 2,000 won’t qualify for a tax deduction under Section 80G.
Insurance premiums – Health insurance premiums must be paid digitally to claim tax benefits, except for preventive check-ups (up to Rs 5,000) which can be paid in cash.
Why Digital Payments Are the Smarter Choice
With strict rules governing cash transactions, it’s smarter to stick to digital options like bank transfers, UPI, or cheques — especially for large amounts. This not only keeps you on the right side of tax laws but also saves you from hefty fines and unwanted trouble.
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