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The Income Tax Department has issued a strong warning against excessive cash transactions, emphasizing that violators may face penalties of up to 100% of the transaction amount. With the increasing push toward a digital economy, the government has implemented strict guidelines under the Income Tax Act, 1961, to curb the use of large cash payments. Failure to adhere to these guidelines can lead to serious financial consequences.

Government’s Push for Digital Transactions

In a bid to promote transparency and traceability, the government has been encouraging individuals and businesses to adopt digital payment methods. As part of this initiative, cash transactions above specified limits have been restricted, and non-compliance invites significant penalties under various sections of the Income Tax Act.

On January 2, 2025, the Income Tax Department released a detailed brochure titled “Say ‘No’ to Cash Transactions”, outlining the dos and don’ts regarding large cash dealings. This document is intended to educate the public and prevent unintentional violations.

Key Cash Transaction Limits and Their Penalties

Here’s a breakdown of the major rules and their associated penalties:

🔸 Section 269SS: Restrictions on Accepting Cash Loans or Deposits

Under this provision:

• No individual is allowed to accept cash loans, deposits, or specified sums of ₹20,000 or more.

• “Specified sums” include advances related to the transfer of immovable property.

Exemptions:

• Government bodies

• Banks (including co-operative banks)

• Post office savings accounts

• Certain notified institutions

• Individuals with agricultural income who are not subject to income tax

Penalty for Violation:
If this rule is broken, the recipient of the cash may be penalized under Section 271D, with a fine equal to the amount accepted in cash.

🔸 Section 269ST: Receiving Cash Over ₹2 Lakh

This section prohibits:

• Receiving ₹2 lakh or more in cash from a single person in one day

• Receiving ₹2 lakh or more in cash for a single event or occasion

This rule applies regardless of whether the person is a taxpayer or not.

Exemptions Include:

• Government departments

• Banking companies

• Post office savings banks

• Co-operative banks

Penalty for Violation:
Violation attracts a fine under Section 271DA, which is equal to the amount received in cash.

🔸 Section 269T: Prohibition on Cash Repayment of Loans or Deposits

• Cash repayments of ₹20,000 or more for loans or deposits are prohibited.

Exemptions:

• Government entities

• Banks

• Post office accounts

Penalty for Violation:
Under Section 271E, the defaulter must pay a fine equal to the cash amount repaid.

🔸 Section 269SU: Mandatory Electronic Payment Facility for Large Businesses

If your business has an annual turnover exceeding ₹50 crore, you are required to:

• Offer digital payment options such as UPI, debit cards, or other prescribed modes.

Penalty for Violation:
A fine of ₹5,000 per day may be levied under Section 271DB for failing to comply.

Why You Should Be Cautious

While many individuals unknowingly engage in transactions that exceed these limits, the consequences can be financially damaging. It’s crucial to stay informed about these restrictions and adopt digital payment methods to avoid penalties. The Income Tax Department is actively monitoring large transactions and is well-equipped to track non-compliant activities.

Final Thoughts

As the government continues to digitize the financial ecosystem, staying on the right side of the law becomes essential. Avoiding large cash transactions not only helps in maintaining transparency but also shields you from heavy fines. Whether you’re buying property, making a loan payment, or organizing a family function, always prefer digital methods over cash. It’s safer, cleaner, and now, legally required in many cases.

Stay informed. Stay digital. Stay penalty-free.

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