Cash Loans From Friends: 100% Penalty If You Cross ₹20K

Borrowing more than ₹20,000 in cash from friends or family breaks income tax rules. The penalty can equal 100% of the loan amount. Always use bank transfers, cheques, or UPI for such transactions.

Here's what happened: Under Section 269SS of the Income Tax Act, accepting any loan above ₹20,000 in cash from any person is prohibited.. If you violate this rule, Section 271D imposes a penalty equal to 100% of the loan amount — so a ₹50,000 cash loan costs you ₹50,000 in penalty.. The rule applies to everyone — friends, family, colleagues — not just banks or formal lenders. Even gifting large cash amounts attracts scrutiny..

What you should do: Always use NEFT, IMPS, UPI, or a crossed cheque for any personal loan above ₹20,000 — even between family members.. Document every personal loan with a simple written agreement mentioning the amount, date, and repayment terms to prove legitimacy if questioned.. If you have already received a large cash loan, consult a CA immediately — disclosing it voluntarily in your ITR is far better than facing a tax notice later..

Even repaying a cash loan above ₹20,000 in cash violates Section 269T — the penalty trap works both ways, on borrowing AND repayment.