Section 269T: The Illegal Repayment of Loans in Cash for AY 2026-27

Most taxpayers are now aware of Section 269SS, which prohibits taking a cash loan of ₹20,000 or more. However, its "silent twin"—Section 269T—is often ignored, leading to massive penalties during tax audits.

Section 269T governs the Repayment of loans and deposits. The department's logic is simple: if you want to settle a debt, it must leave a digital trail. For Financial Year 2025-26, the Income Tax Department is using "Cash Trail Mapping" to identify businesses and individuals who withdraw large amounts of cash and simultaneously show a reduction in their "Unsecured Loans" ledger.

1. The ₹20,000 Rule: When Cash is Banned

Under Section 269T, no person shall repay any loan or deposit or specified sum (advance for property) otherwise than by an account payee cheque or bank draft or use of electronic clearing system, if—

1. The amount of the loan or deposit (including interest) is ₹20,000 or more.
2. The aggregate amount of the loans or deposits held by a person (either in his own name or jointly with another person) is ₹20,000 or more.

The Reality: If you owe a friend ₹25,000 and you hand them twenty-five ₹1,000 notes to "close the account," you have committed an offense. The fact that the loan was interest-free or from a close relative does not change the law.

2. The 100% Penalty: Section 271E

The penalty for violating Section 269T is punitive. Under Section 271E, the penalty is equal to the amount of the loan or deposit so repaid.

• Payer's Risk: Unlike many other sections where the recipient is penalized, under Section 269T, the Payer (the person returning the money) is the one who faces the penalty.
• Case Study: You repay a cash loan of ₹2,00,000 to a vendor to maintain a good relationship.
• Result: The department identifies this through your cash withdrawal patterns or a business audit. You are hit with a penalty of ₹2,00,000. Effectively, you have paid ₹4,00,000 to settle a ₹2,00,000 debt.

3. Scope of "Specified Sum"

In 2015, the scope of Section 269T was expanded to include a "Specified Sum."

• Definition: Any sum of money receivable, whether as advance or otherwise, in relation to the transfer of an immovable property.
• The Property Trap: If you take a ₹50,000 cash advance for selling your flat and the deal is cancelled, you cannot return that ₹50,000 in cash. If you do, you violate Section 269T. This is a common point of failure in Real Estate Token Money Transactions.

4. Why the Department Tracks This

Loan repayments in cash are a primary method for:

1. Laundering Unaccounted Cash: Showing a "repayment" of a fake loan to introduce cash into the system.
2. Tax Evasion: Reducing business liability without actually paying through the bank.

The department reconciles your Cash Ledger (for businesses) and your Bank Withdrawal AIS entries to see if large withdrawals match with "repayment" entries in your balance sheet.

Legal Reference: No Exceptions for Relatives

The law does not distinguish between a professional loan and a family favor.

Section 269T of the Income Tax Act—No branch of a banking company or a co-operative bank and no other person... shall repay any loan or deposit made with it or any specified sum... otherwise than by an account payee cheque or account payee bank draft... [if the amount is ₹20,000 or more].

While Section 273B allows for a penalty waiver if there is "Reasonable Cause," courts have consistently held that a mere social relationship or "convenience" is not a reasonable cause.

Common Mistakes with Section 269T

1. Settling Loans with Jewelry/Gold: If you give your friend gold worth ₹50,000 to settle a loan, it is still a "repayment otherwise than by bank." This can be litigated as a 269T violation in certain cases.
2. "Cash Adjustment" in Books: In Tally or other accounting software, accountants often pass a "Cash Journal" entry to show a loan repayment. In a GST ADT-01 Audit or Income Tax Scrutiny, if you cannot show a bank entry for that date, the entry is rejected and the penalty is applied.
3. Returning "Security Deposits": If you are a landlord and you return a security deposit of ₹30,000 in cash to a tenant, you have violated Section 269T. Always return deposits via UPI or NEFT.

Conclusion

To simplify your filing process and avoid the trap of "double payment" (the loan + the penalty), follow the ₹19,999 Rule. Any repayment of ₹20,000 or above must be digital.

If you have already repaid a loan in cash, ensure you have a written receipt and evidence of the "Source of Cash" to build a "Reasonable Cause" defense if a notice arrives. For more on navigating high-scrutiny audits, see our guide on Surviving a GST ADT-01 Audit. For a broader view of cash limits, read Cash Transaction Limits & Penalties.