The Income Tax Department has warned against cash transactions sternly, emphasizing that violations can lead to penalties amounting to 100% of the transaction value. The move aims to tighten scrutiny on cash dealings, encourage digital payments, and curb the flow of undeclared income.
In a brochure released on January 2, 2025, the department underscored the importance of avoiding cash transactions for taxpayers and the economy. Highlighting Section 269ST of the Income Tax Act, the department stated that penalties could be imposed for receiving or making large cash transactions, contributing to black money circulation.
Key Provisions for Cash Transactions:
- Loans, Deposits, and Advances (Section 269SS)
- Rule: Cash transactions exceeding ₹20,000 for loans, deposits, or specified sums are prohibited.
- Penalty: Equal to the amount transacted in cash.
- Receiving Cash Above ₹2 Lakh (Section 269ST)
- Rule: Individuals cannot accept cash exceeding ₹2 lakh in a single day, single transaction, or for multiple linked transactions.
- Penalty: Equal to the amount received in cash.
- Expert Insight: According to Mumbai-based tax expert Balwant Jain, penalties apply only to recipients, not payers.
- Repayment of Loans and Deposits (Section 269T)
- Rule: Cash repayments exceeding ₹20,000 for loans or deposits are prohibited.
- Business Expenditures (Section 40A(3))
- Rule: Cash payments over ₹10,000 (or ₹35,000 for transporters) are not deductible as business expenses.
- Donations (Section 80G)
- Rule: Donations exceeding ₹2,000 made in cash are ineligible for tax deductions.
Encouraging a Cashless Economy
Abhishek Soni, CEO of Tax2win, highlighted that the deadline for filing AY 2025–26 income tax returns is July 31, 2025, and taxpayers must be cautious of these provisions to avoid hefty penalties. Additionally, the IT Department’s efforts to educate the public aim to ensure smoother adoption of cashless transactions nationwide. 
With the crackdown on cash transactions, taxpayers are encouraged to prioritize digital payments and adhere to compliance requirements. The Income Tax Department’s measures discourage non-compliance and align with the government’s vision of a cashless economy.
