Cash Transaction Limits for Loans, Deposits and Repayment (Income-tax Act, 2025)

Under the Income-tax Act, 2025, you cannot take a loan, deposit or property-related advance of Rs 20,000 or more in cash (section 185), and you cannot repay one in cash once the amount reaches Rs 20,000 (section 188). Separately, nobody can receive Rs 2,00,000 or more in cash in a day, for a single transaction, or for one event (section 186). Payment must go through a bank cheque, bank draft, bank clearing or a notified electronic mode. The Assessing Officer may impose a penalty equal to the sum involved.

This article covers the law as amended by the Finance Act, 2026, applicable from tax year 2026-27. It is general information, not tax advice for your case.

Which sections control cash transactions?

Chapter XII of the Act, "Mode of payment in certain cases, etc.", holds the rules. Three sections matter here, each with its own penalty section.

Section	What it controls	Limit	Penalty section
185	Taking or accepting a loan, deposit or specified sum	Rs 20,000 or more	450
186	Receiving money in cash for any transaction	Rs 2,00,000 or more	451
188	Repaying a loan, deposit or specified advance	Rs 20,000 or more	453

Section 189 defines the two property-related terms used in this article. Section 184 is an interpretation section for a different Chapter (it defines terms such as "arrangement" and "connected person") and does not set any cash limit.

• Specified sum: any sum of money receivable, as advance or otherwise, in relation to the transfer of an immovable property, whether or not the transfer takes place (section 189(c)).
• Specified advance: any sum in the nature of an advance, by whatever name called, in relation to the transfer of an immovable property, whether or not the transfer takes place (section 189(d)).

What are the permitted modes of payment?

Sections 185, 186 and 188 all allow the same four routes: an account payee cheque, an account payee bank draft, an electronic clearing system through a bank account, or another prescribed electronic mode. Rule 48 of the Income-tax Rules, 2026 lists those other electronic modes:

• Credit card and debit card
• Net banking
• IMPS, UPI, RTGS, NEFT
• BHIM Aadhaar Pay
• Tier-III full-KYC Central Bank Digital Currency wallets, P-CBDC, and wholesale or cross-border CBDC

Cash is not on the list. For repayment under section 188, the bank draft must be drawn in the name of the person who made the loan or deposit or paid the advance.

When can you not take a loan or deposit in cash? (section 185)

Section 185(1) bars any person from taking or accepting a loan, deposit or specified sum except through a permitted mode if any one of these amounts is Rs 20,000 or more:

1. The amount you are taking now (or the aggregate of such amounts).
2. Any earlier loan, deposit or specified sum you took from the same person that is still unpaid on the date you take the new amount, whether or not it is due for repayment.
3. The total of the two.

So the test is not just the amount in today's transaction. Old, unpaid balances from the same lender count. Section 185(5) says "loan or deposit" means a loan or deposit of money.

Who is exempt from section 185?

Section 185(2) excludes loans, deposits or specified sums taken or accepted from or by:

• the Government;
• a banking company, post office savings bank or co-operative bank;
• a corporation established by a Central, State or Provincial Act;
• a Government company under section 2(45) of the Companies Act, 2013;
• any institution, association or body, or class of them, notified by the Central Government.

Section 185(3) also exempts a loan between two people who both have agricultural income and neither of whom has any income chargeable to tax under the Act. Section 185(4) raises the limit to Rs 2,00,000 for a deposit accepted by a primary agricultural credit society or a primary co-operative agricultural and rural development bank from its member, and for a loan taken from such a society or bank by its member.

What is the cash limit for receiving money? (section 186)

Section 186(1) bars you from receiving Rs 2,00,000 or more except through a permitted mode if the amount is:

• the aggregate from one person in a day; or
• received for a single transaction; or
• received for transactions relating to one event or occasion from one person.

Any one of the three triggers is enough. Section 186(2) excludes receipts by the Government, a banking company, post office savings bank or co-operative bank, transactions of the kind covered by section 185, and receipts or persons the Central Government notifies.

When must a loan, deposit or advance be repaid by bank? (section 188)

Section 188(1) applies to a branch of a banking company or co-operative bank, any other company or co-operative society, and any firm or other person. They cannot repay a loan, deposit or specified advance except by account payee cheque, account payee bank draft in the lender's name, or electronic clearing or another prescribed electronic mode, if the relevant amount is Rs 20,000 or more. The relevant amount is any of:

• the loan, deposit or specified advance together with interest payable;
• the total of the loans or deposits the lender holds with you on the date of repayment (alone or jointly), with interest;
• the total of the specified advances received from the lender on that date (alone or jointly), with interest.

Interest counts towards the Rs 20,000. A deposit of Rs 18,000 can cross the line once interest is added. Under section 188(5), "loan or deposit" means a loan or deposit of money that is repayable after notice or after a period and, for a person other than a company, includes a loan or deposit of any nature.

A branch of a banking company or co-operative bank may also repay by crediting the savings or current account the lender holds at that branch (section 188(2)). Section 188(3) exempts repayments of loans, deposits or advances taken from the same list of exempt bodies as section 185(2), and section 188(4) raises the limit to Rs 2,00,000 for repayments between a member and a primary agricultural credit society or primary co-operative agricultural and rural development bank.

What is the penalty for cash violations?

In each case the Assessing Officer may impose a penalty equal to the sum involved. The wording is "may", so it is discretionary, but the amount at stake is the whole sum.

Breach	Penalty (section)	Equal to
Taking a loan, deposit or specified sum in breach of section 185	Section 450, on the person who took or accepted it	The loan, deposit or specified sum taken or accepted
Receiving a sum in breach of section 186	Section 451, on the person who received it	The sum received
Repaying in breach of section 188	Section 453, on the person who repaid	The loan, deposit or specified advance repaid

What if a loan is taken by a non-account-payee cheque or hundi? (section 106)

Section 106(1) is a separate tax rule, not a penalty. If an amount, including interest, is borrowed or repaid through a negotiable instrument or a hundi otherwise than by an account payee cheque (or a mode the Board specifies), the amount borrowed or repaid, including interest paid, is deemed to be the income of the person borrowing or repaying, for the tax year of the borrowing or repayment. Under section 106(2), an amount deemed income on borrowing is not assessed again when it is repaid. So a bearer cheque or hundi loan can bring both a tax charge under section 106 and a penalty exposure under the mode-of-payment sections above.

Worked example 1: how the Rs 20,000 test adds up (tax year 2026-27)

Assumptions: Ravi, a salaried individual, borrows from his friend Sunil. Neither is an exempt body, and both pay tax. In April 2026 Ravi took Rs 12,000 from Sunil by UPI and has not repaid it. In August 2026 he asks for another Rs 9,000.

Step	Figure
New amount (clause (i))	Rs 9,000
Earlier unpaid amount from Sunil (clause (ii))	Rs 12,000
Aggregate (clause (iii)): 9,000 + 12,000	Rs 21,000
Is any of these Rs 20,000 or more?	Yes, the aggregate is

The new Rs 9,000 is below Rs 20,000 on its own, but the aggregate is Rs 21,000. Ravi cannot accept the Rs 9,000 in cash. If he did, section 450 lets the Assessing Officer impose a penalty of Rs 9,000, the amount taken. If Sunil sends it by UPI or bank transfer, there is no breach of section 185.

Worked example 2: a deposit that crosses Rs 20,000 with interest (tax year 2026-27)

Assumptions: Meena Traders, a partnership firm, accepted a deposit of Rs 18,000 from a customer, Kavita. On repayment, interest of Rs 3,000 is payable.

Step	Figure
Deposit	Rs 18,000
Interest payable	Rs 3,000
Deposit with interest (section 188(1)(A)): 18,000 + 3,000	Rs 21,000
Rs 20,000 or more?	Yes

Repaying Rs 21,000 in cash breaches section 188. The firm must pay by account payee cheque, a draft in Kavita's name, or an electronic mode listed in rule 48. A cash repayment attracts a penalty under section 453 equal to the amount repaid, here up to Rs 21,000.

Worked example 3: the Rs 2,00,000 receipt limit (tax year 2026-27)

Assumptions: A jewellery shop receives money from one customer for a family wedding, and the counter sale is not a loan, deposit or property advance.

Scenario	Section 186 test	Result
Rs 1,50,000 cash in the morning, Rs 40,000 cash in the evening, same customer, same day	Aggregate in a day: Rs 1,90,000	Below Rs 2,00,000; not barred
Same as above, plus Rs 10,000 cash at 8 pm	Aggregate in a day: Rs 2,00,000	Rs 2,00,000 or more; must use a permitted mode
Rs 1,00,000 cash on Monday, Rs 1,00,000 cash on Wednesday, both for the same wedding	Transactions for one event: Rs 2,00,000	Rs 2,00,000 or more; must use a permitted mode

The second and third rows breach section 186 if received in cash. Section 451 allows a penalty equal to the sum received.

Real-life example: Ravi and the token advance on a flat

Ravi is selling a flat. The buyer, Anil, hands over Rs 50,000 in cash as a token. That sum is a "specified sum" because it is money received as an advance in relation to the transfer of immovable property, and it counts whether or not the sale finally happens (section 189(c)). It is above Rs 20,000, so section 185 required Ravi to take it by cheque, draft or an electronic mode. If the deal collapses and Ravi hands back the Rs 50,000 in cash, that is a repayment of a specified advance above Rs 20,000, which section 188 also bars. Each side of the arrangement has its own penalty exposure.

Real-life example: an agricultural family loan

Meena and her brother Hari both earn only agricultural income and neither has any income chargeable to tax under the Act. Meena lends Hari Rs 60,000 in cash for seed and tools. Section 185(3) takes this loan out of section 185 because both parties have agricultural income and neither has chargeable income. If Hari separately earns taxable income from a job, the exemption is lost and the Rs 20,000 test applies.

Common mistakes

1. Ignoring old unpaid balances. Section 185 adds earlier loans from the same person that are still unpaid, even if they are not yet due.
2. Leaving interest out of the repayment test. Section 188 counts the loan or deposit together with interest payable.
3. Treating the Rs 2,00,000 limit as per bill. Section 186 also counts the day's total from one person and all payments for one event or occasion.
4. Forgetting property advances. A cash token for a property sale is a specified sum, and returning it in cash is repayment of a specified advance.
5. Using a draft in the wrong name. For repayment under section 188, the draft must be drawn in the name of the person who made the loan, deposit or advance.
6. Assuming a Rs 2,00,000 limit applies everywhere. The higher limit in sections 185(4) and 188(4) is only for transactions between a member and a primary agricultural credit society or primary co-operative agricultural and rural development bank.

Quick reference

Item	Section 185	Section 186	Section 188
Applies to	Taking loan, deposit, specified sum	Receiving money	Repaying loan, deposit, specified advance
Limit	Rs 20,000 or more	Rs 2,00,000 or more	Rs 20,000 or more, with interest
Aggregation	New plus unpaid earlier amounts from same person	Per day, per transaction, or per event	Per loan, or total held by lender, with interest
Higher limit	Rs 2,00,000 for member and PACS or PCARDB	None	Rs 2,00,000 for member and PACS or PCARDB
Penalty	Section 450	Section 451	Section 453

How can a CA firm keep clients on the right side of these limits?

For a practice, the risk shows up at year end, when a client's books show cash loans, round-figure deposits or advance receipts that crossed the limit. Finexo's practice management software lets you keep a checklist and notes per client, so cash-mode queries for loans, deposits and property advances are raised before the return is filed. It does not decide whether a transaction breaches the law. That review stays with you.

For another compliance topic from the same Act, see our guide to TDS on rent under the Income-tax Act, 2025.

Where this is in the Act

• Section 184: interpretation (arrangement, connected person and related terms; no cash limit)
• Section 185: mode of taking or accepting certain loans, deposits and specified sum
• Section 186: mode of undertaking transactions (Rs 2,00,000 receipt limit)
• Section 188: mode of repayment of certain loans or deposits or specified advances
• Section 106: borrowing or repayment by hundi or non-account-payee instrument
• Section 189(c), (d): definitions of specified sum and specified advance
• Sections 450, 451, 453: penalties for breach of sections 185, 186 and 188
• Rule 48, Income-tax Rules, 2026: other electronic modes of payment