Among all the compliance rules in Indian taxation, Section 269SS quietly plays one of the biggest roles in curbing unaccounted money. Most taxpayers underestimate the seriousness of this rule because it sounds simple on the surface — a restriction on accepting loans or deposits of ₹20,000 or more in cash. But in practice, it’s much more than that. It is a powerful anti-evasion tool designed to stop the circulation of black money, prevent bogus loans, & ensure every major financial transaction leaves a trail in the banking system.
Whether you’re a salaried individual borrowing from a friend, a business accepting funds from partners, or a company dealing with inter-entity loans, this section applies universally. And the penalty for ignoring it is harsh: a 100% penalty equal to the amount accepted in cash. That’s why understanding this rule is not just good practice — it can save you from substantial financial pain.
What Section 269SS Really Says
At its core, Section 269SS prohibits any person be it an individual, company, firm or association from accepting a loan, deposit, or specified sum of ₹20,000 or more in cash. The law is extremely strict. Even accepting ₹20,001 in cash is treated as a full-fledged violation.
The law clearly states that such transactions must be carried out only through:
- Account payee cheque"
- Account payee bank draft
- Electronic clearing system (NEFT, RTGS, IMPS, UPI, or net banking)
The rule applies whether you are accepting the money from a relative, a friend, a business partner, or even another entity. The intent is simple: prohibit cash transactions of ₹20,000 or more so that large movements of money are always traceable.
It also covers cash payment and repayment of loans, deposits & transactions in immovable property, making it a wide-ranging compliance provision.
Types of Transactions Section 269SS Covers
The law applies to three major categories:
- Loans
If an individual or business accepts a cash loan of ₹20,000 or more — even from a close friend — it becomes a violation.
- Deposits
Money accepted as a deposit above the threshold must follow banking channels.
- Specified Sums Related to Property
This includes advances or payments connected to immovable property.
The rule’s objective is to monitor all high-value dealings. Tax authorities use this section to ensure compliance with tax regulations & eliminate situations where people hide taxable income behind fictitious “loans” or “cash deposits.”
Also Read: Penalty on Cash Transactions Beyond Limits
Practical Examples That Show How Easily Violations Happen
Let’s break it down through scenarios that frequently take place in real life:
Example 1: Borrowing from a friend
A taxpayer needs ₹35,000 urgently. His friend gives him the entire amount in cash.
Violation: Yes — accepting loans or deposits from others in cash above the limit is prohibited.
Example 2: A business partner infuses money in cash
A partner brings ₹50,000 cash into the firm as capital.
Violation: Yes — even capital introduced by partners needs to follow banking modes.
Example 3: Advance payment for property
A buyer pays ₹60,000 in cash as an advance for a plot.
Violation: Yes — the law covers transactions in immovable property too.
Even innocent-looking transactions can trigger Section 269SS if they exceed the threshold & occur in cash.
Why the Threshold Is Only ₹20,000
At first glance, ₹20,000 may seem low in today’s economic environment. But when the section was introduced, the intention was to create a deterrent against cash-based “loan” structures commonly used to route unaccounted money. Even today, a significant portion of financial misconduct begins with informal cash dealings, especially when parties attempt to hide the source of funds.
This threshold ensures that:
- Every financial trail above the limit becomes traceable
- Taxpayers maintain proper documentation"
- Businesses follow transparent banking practices
The low limit forces compliance discipline.
Exception Scenarios Where Section 269SS Does Not Apply
While most taxpayers fall within the rule, certain exceptions exist, such as:
- Government-controlled entities
- Banking companies
- Transactions where both parties have agricultural income & no taxable income
However, these exceptions are narrow. Most individuals, businesses, and firms must follow Section 269SS without fail.
Also Read: Guide on Penalties for Non-Compliance
Penalty for Violating Section 269SS — Equal to the Entire Amount
The compliance burden here is heavy, and so is the punishment. Under Section 271D, if a person violates Section 269SS, the penalty is:
100% of the amount taken in cash
So, accepting just ₹50,000 in cash from a friend can lead to a ₹50,000 penalty — even if the transaction was genuine & not intended for tax evasion.
This tough provision exists because the government wants zero ambiguity in financial movements.
How to Stay Compliant — Simple, Practical Tips
To avoid trouble:
- Always use bank transfers for loans or deposits above ₹20,000
- Keep written agreements or confirmations for transparency
- Do not repay high-value loans in cash
- Avoid accepting cash for property deals
- Ensure your business has proper documentation for all partner or member contributions
A few disciplined steps today can save you from notices, penalties, & unnecessary litigation years later.
Final Thoughts
Section 269SS plays a major role in ensuring transparent financial behaviour across individuals, businesses, and property-related dealings. By prohibiting cash transactions of ₹20,000 or more for loans, deposits, & specified sums, the Income Tax Act strengthens accountability and prevents the creation of untraceable financial trails.
If you ever deal with loans or deposits — even within family or friends — understanding this rule is crucial.
Need help with penalty notices, Section 269SS queries, or loan-related tax compliance? Talk to a qualified expert at CallMyCA.com — your CA is just one click away.
