Friends Giving You Cash Loans? You Might Owe Huge Tax Penalties

India has witnessed a rapid transformation in its payment system over the past decade. From street markets to high-end retail stores, the use of both digital platforms like the Unified Payments Interface (UPI) and traditional cash continues to dominate financial transactions across the country.

However, people might not know that using cash can actually put you at risk for an income tax penalty, says Section 271DD of the Income Tax Act, 1961. If you break the mandate of not using cash beyond the mentioned Rs 20,000 you could face a penalty equal to the cash amount you received.

Even in case a friend gives another friend a cash loan of Rs 30,000 then he/she may attract a penalty under Section 271D, equal to the amount of the loan so accepted.

A(i) 1. Section 269SS: Taking/accepting certain loans, deposits and specified sums in cash

No person will accept any loan, deposit or other specified in cash if the amount totals Rs 20,000 or more. ‘Specified sum’ means any sum of money receivable as advance or otherwise in relation to the transfer of an immovable property, whether the transfer takes place or not.

The above mandate does not apply to sums as stipulated accepted from or by-

• A banking company, Post office savings bank or co-operative bank
• The Government
• A corporation company (Defined under Section 2(45) of the Companies Act, 2013).
• A corporation established by a Central, State or Provincial Act
• A government company (Defined under Section 2(45) of the Companies Act, 2013).
• A notified institution, association or body or class of institutions, associations or bodies.

The mandate above is not applicable if the payer and the payee are both earning agricultural income and neither of them has any income chargeable to tax under the Income Tax Act, 1961.

Penalty: If someone violates the above, then he/she will be levied a penalty under section 271D for an amount in cash.

2. Section 269 ST: Receiving other amounts in cash

No person will take or receive in cash any amounts totaling Rs 2 lakh or more:

• In aggregate from a person in a day
• In respect of a single transaction
• In respect of transactions relating to one event or occasion from a person.

The mandate above does not apply to:

• Persons or classes of persons or receipts as separately notified for the purpose
• Any receipt by the Government or any banking company, the post office savings bank or any co-operative bank
• Transactions of the nature referred to in section 269SS

The mandate above will apply to:

• Receipt of fees by educational institutions and hospitals
• Donations by religious institutions
• Transactions between two related persons or
• Where both the payer and the payee are exempt from payment of tax.

Penalty: If someone violates the above, then he/she will be levied a penalty under section 271DA for an amount in cash.

3. Section 269T: Repayment of certain loans or deposits

The repayment of certain loans or deposits will be in cash.

• No branch of a banking company or a cooperative bank
• No other company or cooperative society or
• No firm or other person

The aggregate amount will include amounts held by the person in his own name or jointly with any other person on the date of such repayment.

The above mandate will not apply to the following:

• The government
• Any banking company, post office saving bank or co-operative bank (not all)
• Any corporation established by a central, state or provincial act
• Any government company (Defined under Section 2(45) of the Companies Act, 2013).
• Notified institution, association or body or class of institutions.

Penalty: If someone violates the above, then he/she is levied a penalty under scetion 271E an the amount is repaid in cash.

A(ii) Provisions of a penal nature setting off a threshold for facilitating prescribed electronic modes

1. Section 269SU: Acceptance of payments via prescribed electronic modes

This is applicable to every person having business turnover/sales or even gross receipts exceeding Rs 50 crore but only available to a person:

• Having only B2B transactions
• Whose aggregate of all amounts received through non-cash modes during the previous year, such as value received for sales, turnover or gross receipts, represents 95% of all amounts received.
• An assessee which is 100 percent export-oriented
• A foreign company carrying on the business in India through a Permanent Establishment (PE)
• Needs to mandatorily facilitate the acceptance of payments through prescribed electronic modes (in addition to any facility for payments through other electronic modes) as prescribed by the CBDT which currently are (Refer Rule 6ABBA)
• Credit card and debit card
• Net Banking
• Immediate Payment Service (IMPS)
• National Electronic Funds
• Transfer (NEFT )
• Unified Payment Interface (UPI), Real Time Gross Settlement (RTGS), Bharat Interface for Money (BHIM) and Aadhaar Pay.

Penalty: As per Section 271DB if someone violates the above, then he/she has to pay Rs 5,000 for everyday which the failure continues.