Payments with UPI, NEFT: Violating cash limits can trigger heavy tax penalties, warn experts
According to Section 271DD of the Income Tax Act, accepting or paying cash beyond the prescribed limits attracts a penalty equivalent to the amount transacted. The Income Tax Department has urged people to avoid high-value cash dealings, stating: “Say no to cash transactions.”
- Sep 23, 2025,
- Updated Sep 23, 2025 3:34 PM IST
In India, cash continues to dominate small day-to-day purchases despite the growing popularity of UPI and other digital payment platforms. However, when it comes to high-value dealings, the Income Tax Act, 1961, imposes strict limits to check unaccounted money and strengthen financial transparency. Many individuals remain unaware that breaching these thresholds can invite severe penalties, often equal to the amount involved.
According to Section 271DD of the Income Tax Act, accepting or paying cash beyond the prescribed limits attracts a penalty equivalent to the amount transacted. The Income Tax Department, in a recent awareness brochure, urged people to avoid high-value cash dealings, stating: “Say no to cash transactions.”
For instance, a loan of Rs 30,000 taken in cash between two friends violates Section 269SS, which prohibits acceptance of loans, deposits, or specified sums of Rs 20,000 or more in cash. Such transactions must be routed through account payee cheques, demand drafts, or digital modes like NEFT, RTGS, and UPI.
CA and tax expert Dr. Suresh Surana explained: “The rules apply even to personal transactions between friends or relatives, unless the payment involves the government, banks, or notified corporations. To curb black money and encourage digital payments, high-value transactions must move through traceable banking channels. For businesses with turnover above Rs 50 crore, compliance is stricter—failure to provide digital modes of payment invites a penalty of Rs 5,000 per day under Section 271DB.”
Restrictions on cash receipts
One of the most significant provisions, Section 269ST, prohibits any person from receiving Rs 2 lakh or more in cash—whether from a single person in a day, in one transaction, or across transactions related to a single event. This applies to donations, fees, and even personal transfers. Violation attracts a penalty under Section 271DA, equal to the amount received.
Exemptions exist for the government, banks, post office savings accounts, and specific notified entities. RBI notifications also carve out exceptions for business correspondents, white-label ATM operators, and prepaid payment instrument agents.
Loans and repayments
Sections 269SS and 269T restrict not just the acceptance but also the repayment of loans and deposits worth Rs 20,000 or more in cash. Repayment must flow through formal channels unless it involves exempt institutions like banks or government companies. Breaches lead to penalties under Sections 271D and 271E, respectively, both equal to the cash amount involved.
Judicial reinforcement
The judiciary has backed these legislative restrictions. In RBANMS Educational Institution v. B. Gunashekar (2025), the Supreme Court reaffirmed that whenever a civil suit involves cash payments of Rs 2 lakh or more, courts must report the matter to the jurisdictional Income Tax Department. Sub-Registrars handling property transactions disclosing cash payments of Rs 2 lakh or more are also duty-bound to notify the Department. Failure to report can trigger disciplinary action at the state level.
In another ruling (Civil Appeal No. 5200 of 2025), the Court clarified that penalties under Section 271DA fall on recipients of unlawful cash payments, while payers must disclose the source of funds. These judgments highlight accountability at both ends of the transaction chain.
The overarching objective of these restrictions is to deter tax evasion, ensure traceability of large money flows, and reduce reliance on cash. By enforcing penalties that mirror the transaction value, the government seeks to make high-value cash use economically unviable.
Experts note that while India’s cultural preference for cash remains strong, individuals and businesses must exercise caution. “Exceeding statutory limits—whether in personal loans, repayments, or business dealings—can wipe out the benefit of the transaction itself through penalties,” said Surana.
High-value transactions
In summary, cash remains convenient for everyday use, but high-value transactions must move through digital or banking channels. Compliance with Sections 269SS, 269T, 269ST, and related provisions is no longer optional—it is essential for avoiding crippling penalties. The government’s legislative framework, combined with judicial directives, reinforces India’s transition toward a transparent, accountable, and increasingly digital economy.
In India, cash continues to dominate small day-to-day purchases despite the growing popularity of UPI and other digital payment platforms. However, when it comes to high-value dealings, the Income Tax Act, 1961, imposes strict limits to check unaccounted money and strengthen financial transparency. Many individuals remain unaware that breaching these thresholds can invite severe penalties, often equal to the amount involved.
According to Section 271DD of the Income Tax Act, accepting or paying cash beyond the prescribed limits attracts a penalty equivalent to the amount transacted. The Income Tax Department, in a recent awareness brochure, urged people to avoid high-value cash dealings, stating: “Say no to cash transactions.”
For instance, a loan of Rs 30,000 taken in cash between two friends violates Section 269SS, which prohibits acceptance of loans, deposits, or specified sums of Rs 20,000 or more in cash. Such transactions must be routed through account payee cheques, demand drafts, or digital modes like NEFT, RTGS, and UPI.
CA and tax expert Dr. Suresh Surana explained: “The rules apply even to personal transactions between friends or relatives, unless the payment involves the government, banks, or notified corporations. To curb black money and encourage digital payments, high-value transactions must move through traceable banking channels. For businesses with turnover above Rs 50 crore, compliance is stricter—failure to provide digital modes of payment invites a penalty of Rs 5,000 per day under Section 271DB.”
Restrictions on cash receipts
One of the most significant provisions, Section 269ST, prohibits any person from receiving Rs 2 lakh or more in cash—whether from a single person in a day, in one transaction, or across transactions related to a single event. This applies to donations, fees, and even personal transfers. Violation attracts a penalty under Section 271DA, equal to the amount received.
Exemptions exist for the government, banks, post office savings accounts, and specific notified entities. RBI notifications also carve out exceptions for business correspondents, white-label ATM operators, and prepaid payment instrument agents.
Loans and repayments
Sections 269SS and 269T restrict not just the acceptance but also the repayment of loans and deposits worth Rs 20,000 or more in cash. Repayment must flow through formal channels unless it involves exempt institutions like banks or government companies. Breaches lead to penalties under Sections 271D and 271E, respectively, both equal to the cash amount involved.
Judicial reinforcement
The judiciary has backed these legislative restrictions. In RBANMS Educational Institution v. B. Gunashekar (2025), the Supreme Court reaffirmed that whenever a civil suit involves cash payments of Rs 2 lakh or more, courts must report the matter to the jurisdictional Income Tax Department. Sub-Registrars handling property transactions disclosing cash payments of Rs 2 lakh or more are also duty-bound to notify the Department. Failure to report can trigger disciplinary action at the state level.
In another ruling (Civil Appeal No. 5200 of 2025), the Court clarified that penalties under Section 271DA fall on recipients of unlawful cash payments, while payers must disclose the source of funds. These judgments highlight accountability at both ends of the transaction chain.
The overarching objective of these restrictions is to deter tax evasion, ensure traceability of large money flows, and reduce reliance on cash. By enforcing penalties that mirror the transaction value, the government seeks to make high-value cash use economically unviable.
Experts note that while India’s cultural preference for cash remains strong, individuals and businesses must exercise caution. “Exceeding statutory limits—whether in personal loans, repayments, or business dealings—can wipe out the benefit of the transaction itself through penalties,” said Surana.
High-value transactions
In summary, cash remains convenient for everyday use, but high-value transactions must move through digital or banking channels. Compliance with Sections 269SS, 269T, 269ST, and related provisions is no longer optional—it is essential for avoiding crippling penalties. The government’s legislative framework, combined with judicial directives, reinforces India’s transition toward a transparent, accountable, and increasingly digital economy.