For transactions governed by the current income-tax law, finance teams should now read the cash-loan restrictions through sections 185 and 188 of the Income-tax Act, 2025. The change in section numbers matters operationally because many checklists, audit programs and accounting policies still refer to sections 269SS and 269T of the Income-tax Act, 1961. CBDT confirmed that the Income-tax Act, 2025 came into force from 1 April 2026 in its official commencement press release.
The underlying compliance question is practical: when may a person take a loan, deposit or property-related advance, and when may it be repaid, without using an account-payee or permitted electronic mode? The answer is not simply “cash below Rs. 20,000 is always safe.” Both sections contain aggregation tests that can bring a smaller individual payment within the restriction.
Quick map from the familiar old sections
- Taking or accepting money: the subject previously dealt with in section 269SS of the 1961 Act is dealt with in section 185 of the Income-tax Act, 2025.
- Repaying money: the subject previously dealt with in section 269T of the 1961 Act is dealt with in section 188 of the Income-tax Act, 2025.
Section 185: when taking or accepting a loan or deposit is restricted
Section 185 says a person cannot take or accept a loan, deposit or specified sum except through an account-payee cheque, account-payee bank draft, electronic clearing system through a bank account or another prescribed electronic mode when any one of three tests reaches Rs. 20,000: the current amount or aggregate current amount; the unpaid amount previously taken from that same person; or the combined current amount plus the unpaid earlier amount.
The third test is easy to miss. Suppose A already owes B Rs. 12,000 from an earlier loan and proposes to take another Rs. 9,000 from B in cash. The new amount alone is below Rs. 20,000 and the old balance alone is below Rs. 20,000, but together they are Rs. 21,000. Section 185 therefore requires an approved mode for the new acceptance.
Remember: section 185 is a payment-mode rule, not merely a ban on physical cash. Accounts teams should test the actual channel used against the statutory list.
Section 188: the repayment test also includes interest
Section 188 applies when repaying a loan, deposit or specified advance. The approved modes are an account-payee cheque, an account-payee bank draft drawn in the payee's name, electronic clearing system through a bank account or another prescribed electronic mode. The Rs. 20,000 trigger is tested against the loan, deposit or specified advance together with interest, and also against relevant aggregate balances on the repayment date.
For example, assume a borrower has to repay principal of Rs. 18,500 plus Rs. 2,000 of interest. The combined amount is Rs. 20,500. Even though the principal by itself is below Rs. 20,000, the section 188 threshold is reached because interest is part of the statutory test.
Property advances are expressly covered
These rules are not confined to conventional borrowing. Section 189 of the current Act, available in the official Income-tax Act, 2025 text as amended by the Finance Act, 2026, defines a “specified sum” for section 185 as money receivable, whether as advance or otherwise, in relation to transfer of immovable property, whether or not the transfer ultimately takes place. It similarly defines a “specified advance” for repayment purposes as an advance relating to transfer of immovable property, again whether or not the transfer takes place.
Property booking, sale-agreement and refund workflows therefore need the same control even when the amount is labelled an advance rather than a loan.
Important statutory exceptions
Section 185 contains specified institutional exceptions involving the Government, banking companies, post office savings banks, co-operative banks, statutory corporations, Government companies and notified bodies. It also provides an exception where both parties have agricultural income and neither has income chargeable to tax under the Act.
For certain deposit or loan transactions between a member and a primary agricultural credit society or a primary co-operative agricultural and rural development bank, section 185 substitutes Rs. 2,00,000 for Rs. 20,000. Section 188 contains a corresponding Rs. 2,00,000 substitution for specified repayment cases involving those institutions and members. These special thresholds are transaction-specific and should not be generalised to ordinary loans or property advances.
Do not confuse section 185 with the general Rs. 2 lakh receipt rule
Section 186 separately restricts receipts of Rs. 2,00,000 or more in the circumstances stated there. It expressly excludes transactions of the nature referred to in section 185. In practice, classify the transaction first: if it is a loan, deposit or specified sum within section 185, apply that specific rule rather than assuming the general receipt threshold in section 186 governs it.
Penalty exposure can equal the transaction amount
The current Act links serious consequences to non-compliance. Section 450 permits the Assessing Officer to impose a penalty equal to the loan, deposit or specified sum taken or accepted in contravention of section 185. Section 453 similarly permits a penalty equal to the loan, deposit or specified advance repaid contrary to section 188. These penalty provisions appear in the same official consolidated Act.
Section 470 is also important: for the failures listed there, including sections 450 and 453, no penalty is to be imposed if the person proves that there was reasonable cause for the failure. That is a penalty-relief provision, not permission to ignore sections 185 or 188. A business should still design controls for compliance and retain evidence if an exceptional failure occurs.
Practical accounts and audit checklist
- Identify the transaction correctly. Separate ordinary sales receipts from loans, deposits and immovable-property advances.
- Check the counterparty ledger before accepting money. For section 185, include unpaid earlier amounts from the same person, not just today's receipt.
- Include interest before repayment. For section 188, do not test only the principal amount.
- Aggregate relevant balances. Multiple small loans or deposits can cross the threshold when viewed together.
- Verify the actual payment mode. Keep bank statements, account-payee instrument evidence or electronic transaction references.
- Document exceptions. Where an institutional, agricultural-income or specified co-operative exception is relied on, retain evidence supporting every condition.
- Update legacy controls. Replace automatic references to 269SS and 269T with sections 185 and 188 for current-law compliance, while preserving old references where historical periods are being reviewed.
Common mistakes to avoid
- Assuming every receipt below Rs. 20,000 can be taken in cash without checking prior unpaid balances.
- Testing repayment threshold only on principal and ignoring interest.
- Treating a property advance or refund as outside the rule because it is not labelled a loan.
- Applying the Rs. 2 lakh rule in section 186 to a transaction specifically governed by section 185.
- Relying on an exception without keeping evidence that its conditions are satisfied.
Practical takeaway
For current transactions, the safest control is counterparty-based rather than voucher-based. Before accepting or repaying money, identify whether section 185 or 188 applies, aggregate the balances the section requires, include interest where relevant, use a permitted payment mode and preserve the supporting trail. A single payment below Rs. 20,000 can still fall within the restriction once earlier balances or interest are added.
