Section 185 Income Tax Act 2025: Can You Accept Cash Loans of Rs. 20,000 or More?

Section 185 regulates how a person may take or accept certain loans, deposits and specified sums. It generally prohibits acceptance in cash when the statutory threshold is reached, taking account of existing unpaid amounts from the same person.

Current law: Section 185 belongs to Chapter XII of the Income-tax Act, 2025, effective from 1 April 2026. It broadly replaces section 269SS of the Income-tax Act, 1961. Check the applicable law for the relevant transaction date.

What does Section 185 prohibit?

Under section 185(1), a person must not take or accept a loan, deposit or specified sum from another person other than through a permitted payment mode if the relevant amount is Rs. 20,000 or more. The test covers the proposed receipt, amounts already received and remaining unpaid from that same person, and their aggregate.

The provision concerns the mode of acceptance. It does not mean that every loan of Rs. 20,000 or more is prohibited; such transactions may be undertaken through a permitted mode.

How is the Rs. 20,000 limit calculated?

Section 185(1) applies if any of these reaches Rs. 20,000:

The amount or aggregate amount of the loan, deposit or specified sum proposed to be accepted.
The amount or aggregate amount of previously accepted loans, deposits or specified sums from the same person that remains unpaid on the acceptance date, whether or not repayment is due.
The combined total of the proposed acceptance and those unpaid amounts.

Important: Splitting a receipt into smaller cash instalments does not necessarily avoid the restriction. The statutory aggregate and outstanding-balance tests must also be satisfied.

Which payment modes are permitted?

Section 185(1) recognises:

Account payee cheque.
Account payee bank draft.
Electronic clearing system through a bank account.
Any other electronic mode prescribed under the applicable rules.

For electronic transfers, confirm that the particular method is covered by the rules in force. Maintain bank statements, transaction references, agreements and relevant accounting records.

What are the exceptions under Section 185?

Section 185(2): Specified persons and institutions

The restriction in subsection (1) does not apply to loans, deposits or specified sums taken or accepted from or by the following:

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 within section 2(45) of the Companies Act, 2013.
Institutions, associations, bodies or classes thereof notified by the Central Government.

Section 185(3): Agricultural income exception

Subsection (1) does not apply where both the person accepting and the person providing the loan, deposit or specified sum have agricultural income and neither has income chargeable to tax under the Act. Both conditions must be verified for both parties.

Section 185(4): Rs. 2,00,000 threshold for certain cooperative transactions

The Rs. 20,000 figure is replaced by Rs. 2,00,000 for a qualifying deposit accepted by a primary agricultural credit society or primary co-operative agricultural and rural development bank from its member, or a qualifying loan taken by a member from the specified society or bank. This special threshold is limited to the transactions described in subsection (4); it is not a general cash-loan exemption.

Relevant statutory definitions

Loan or deposit - Section 185(5): The expression means a loan or deposit of money.

Specified sum: For the applicable statutory meaning, consult the definitions and interpretive provisions governing section 185, including relevant rules and explanations. It is important to identify whether the particular receipt falls within this category rather than treating all receipts as loans.

Outstanding amount: For the threshold test, this refers to earlier relevant amounts taken or accepted from the same person that remain unpaid on the date of the new acceptance, whether due for repayment or not.

Account payee cheque or draft: A cheque or bank draft payable to the identified payee rather than a bearer instrument; the precise transaction should comply with banking requirements.

Practical examples

Example 1: Cash loan of Rs. 25,000

An individual proposes to accept a cash loan of Rs. 25,000 from a friend. Unless an exception applies, section 185(1) requires a permitted payment mode because the amount reaches the statutory threshold.

Example 2: Existing unpaid loan plus new cash receipt

A borrower already owes Rs. 15,000 to a lender and proposes to take another Rs. 6,000 from that lender. The combined outstanding and new amount is Rs. 21,000, so a cash acceptance would generally be restricted even though the new receipt alone is below Rs. 20,000.

Example 3: Qualifying agricultural cooperative transaction

A qualifying member transaction covered by section 185(4) is tested against the substituted Rs. 2,00,000 threshold. Confirm that the institution, membership and transaction meet the subsection's conditions.

What happens if Section 185 is violated?

Section 450 of the Income-tax Act, 2025 provides for penalty in relation to failure to comply with section 185. The penalty provisions, any applicable statutory relief and the facts of the transaction must be examined separately. A cash receipt should not be assumed lawful merely because it has been recorded in the books.

Keep supporting documents explaining the source, purpose and mode of receipt, including banking records and correspondence. For older transactions, examine the corresponding section 269SS and penalty provisions under the Income-tax Act, 1961.

Frequently asked questions

Is a cash loan of exactly Rs. 20,000 allowed?

Generally no, if section 185(1) applies and no exception is available: the threshold is Rs. 20,000 or more.

Can I accept Rs. 10,000 twice from the same person?

Not necessarily. The aggregate amount and any earlier unpaid relevant amount from the same person must be considered; two cash receipts cannot automatically be treated as independent for this test.

Does Section 185 ban all loans above Rs. 20,000?

No. It regulates the mode of taking or accepting covered loans, deposits and specified sums. Permitted banking and prescribed electronic modes remain available.

Does the Rs. 2,00,000 limit apply to every cooperative bank?

No. Section 185(4) specifically identifies qualifying member transactions with specified agricultural credit societies and cooperative agricultural and rural development banks.

Official statutory references

Official Section 185 Consolidated Income-tax Act 2025 Income Tax Department Act and Rules

Last reviewed: 10 November 2026. This article is general legal information and should be read with the Act, applicable rules, notifications and relevant judicial decisions.