Section 185 — Mode of Taking Loans Deposits | ITA 2025

Section 185 — - MODE OF TAKING OR ACCEPTING LOANS / DEPOSITS / SPECIFIED SUMS

Section 185 is the substantive equivalent of 1961 s. 269SS -- the cash-acceptance prohibition introduced 1984 to combat black-money channelisation through cash loans / deposits / advances. The provision PROHIBITS taking or accepting loan / deposit / specified sum from another person OTHER THAN through banking channel (account payee cheque / draft / ECS / prescribed electronic mode) where amount / aggregate / outstanding crosses INR 20,000. The threshold is per-transaction-or-aggregate-or-outstanding -- whichever crosses first. 'Specified sum' (FA 2015 expansion) covers advances on immovable property transfer (real-estate cash advance bar). Carve-outs: Government / banking company / specified entities (s. 269SS Proviso preserved). Penalty under s. 271D = sum-equal-to-amount-accepted-in-cash. Practitioner-grade rule: cash-borrowing > INR 20K from any source attracts 100% penalty PLUS the underlying acceptance is illegal.

Statutory text — Income-tax Act, 2025

Marginal note -- Mode of taking or accepting certain loans, deposits and specified sums

(1) No person shall take or accept from another person any loan or deposit or specified sum, except through—

(a) an account payee cheque; or

(b) account payee bank draft; or

(c) electronic clearing system through a bank account; or

(d) any other prescribed electronic mode, if,—

(i) the amount or the aggregate amount of such loan, deposit, or speci- fied sum; or

(ii) the amount or the aggregate amount of any previously taken or accepted loan or deposit or specified sum by such person from such another per- son, which is remaining unpaid, whether due for repayment or not, as on the date of taking or accepting such amount as referred to in clause (i); or

(iii) the aggregate of the amounts referred to in clauses (i) and (ii), is ` 20000 or more.

(2) Sub-section (1) shall not apply to loans or deposits or specified sums taken or accepted from or by,—

(a) the Government;

(b) any banking company, post office savings bank, or co-operative bank;

(c) any corporation established by a Central, State or Provincial Act;

(d) any Government company as defined under section 2(45) of the Companies Act, 2013 (18 of 2013);

(e) any institution, association, or body or class of institutions, associations or bodies notified by the Central Government.

(3) The provisions of sub-section (1) shall not apply to any loan or deposit or speci- fied sum where, the person taking or accepting such loan or deposit or specified sum and person from whom such loan or deposit or specified sum is taken or accepted, both, have agricultural income and neither has any income chargeable to tax under this Act.

(4) In sub-section (1), “` 200000” shall be substituted for “` 20000” in the case of any deposit or loan, where—

(a) such deposit is accepted by a primary agricultural credit society or a primary co-operative agricultural and rural development bank from its member; or

(b) such loan is taken from a primary agricultural credit society or primary co-operative agricultural and development bank by its member.

(5) For the purposes of this section, the expression “loan or deposit” means loan or deposit of money. Mode of undertaking transactions.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
INCOME-TAX ACT, 2025 -- s. 185	INCOME-TAX ACT, 1961 -- s. 269SS
Sub-s. (1) -- prohibition on cash acceptance > INR 20,000	1961 s. 269SS
'Specified sum' covering immovable property advances	1961 s. 269SS Explanation [FA 2015]
Government / bank / specified entity carve-outs	1961 s. 269SS Proviso

STATUTORY ARCHITECTURE

PROHIBITED: taking / accepting loan / deposit / SPECIFIED SUM from another person otherwise than by: (a) account payee cheque; (b) account payee bank draft; (c) electronic clearing system (ECS / NEFT / RTGS); (d) prescribed electronic mode (UPI / IMPS / cards / bank transfer). THRESHOLD TRIGGER: (i) amount of THIS loan / deposit / specified sum; OR (ii) aggregate of THIS + any earlier accepted from same person not yet repaid; (iii) any previously-accepted-not-yet-repaid -- if any of (i)/(ii)/(iii) >= INR 20,000. 'SPECIFIED SUM' (FA 2015 / now 2025 Act): includes ANY SUM of money receivable, whether as advance or otherwise, in relation to TRANSFER OF AN IMMOVABLE PROPERTY whether or not the transfer takes place. Catches cash earnest money / token amount in real-estate transactions. PENALTY (s. 271D / equivalent in 2025 Act): sum equal to amount taken / accepted in cash. So cash loan of INR 5L = INR 5L penalty (PLUS the loan is questionable in books). Burden of proving 'reasonable cause' u/s 273B / equivalent to escape penalty. CARVE-OUTS: Government / banking company / Post Office Savings Bank / Government company / corporation established by Central or State Act / specified institution.

PLANNING NOTES

(i) BANKING CHANNEL DEFAULT -- for any loan / deposit / advance from non-banking source, route through account payee cheque / NEFT / UPI; never cash above INR 20K. (ii) REAL-ESTATE TRANSACTIONS -- token / advance must be cheque / digital; cash advance attracts s. 185 even where no formal sale-deed signed. (iii) HUF INTRA-FAMILY LOANS -- subject to s. 185; cash transfer between karta and member > INR 20K attracts penalty. (iv) FRIEND / RELATIVE LOANS -- no carve-out; banking channel mandatory. (v) S. 273B / REASONABLE CAUSE -- emergency hospital / urgent medical / declared genuine cause may avoid penalty; document evidence carefully.

CROSS-REFERENCES

Section 186 -- Cash receipt INR 2L bar (s. 269ST).
Section 188 -- Repayment mode (s. 269T).
Section 189 -- Definitions.
Section 271D / equivalent -- penalty for s. 185 violation.
Section 273B / equivalent -- reasonable cause defence.

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