Section 188 · Mode of payment
Section 188 of the Income-tax Act, 2025 — Mode of Repayment of Certain Loans, Deposits or Specified Advances (Cash Limit ₹20,000)
By CA Rajat Agrawal
Updated 04 Jul 2026
Chapter XII
📜 What the law says — Section 188, Income-tax Act 2025
188. (1) No branch of a banking company or co-operative bank and no other
company or co-operative society and no firm or other person shall repay—
(a) any loan or deposit made with it; or
(b) any specified advance received by it,
except through—
(i) an account payee cheque;
(ii) account payee bank draft drawn in the name of the person who has made
the loan or deposit or paid the specified advance; or
(iii) by use of electronic clearing system through a bank account, or any other
prescribed electronic mode,
if, —
(A) the loan or the deposit or specified advance, together with the interest,
if any, payable thereon; or
(B) the aggregate amount of the loans or deposits held by such person with
the branch of the banking company or co-operative bank or, as the case
may be, the other company or co-operative society or the firm or other
person (either individually or jointly) on the date of such repayment
together with interest, if any, payable thereon; or
(C) the aggregate amount of the specified advances received by such person
(either individually or jointly) on the date of such repayment together
with the interest, if any, payable thereon,
is ` 20000 or more.
(2) Irrespective of the provision in sub-section (1), a branch of a banking compa-
ny or co-operative bank, may also make the repayment by crediting such loan or
deposit to the savings bank account or current account, if any, with such branch of
the person to whom such loan or deposit has to be repaid.
(3) Sub-section (1) shall not apply to repayment of any loan, deposit, or specified
advance taken or accepted from—
(a) 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 in 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.
(4) In sub-section (1), “` 200000” shall be substituted for “` 20000” in the case of
any deposit or loan where—
(a) such deposit is repaid to a member by a primary agricultural credit society
or a primary co-operative agricultural and rural development bank; or
In plain language
What Section 188 actually says
Note on the topic: although some indexes tag Section 188 under "transfer pricing", that is a mislabel. Section 188 of the Income-tax Act, 2025 deals with the mode of repayment of certain loans, deposits and specified advances. It is the direct successor of the well-known Section 269T of the Income-tax Act, 1961, and applies from 1 April 2026. Transfer pricing now lives in Sections 161–173 of the 2025 Act, not here.
In plain words, Section 188 says: if you have to repay a loan, deposit or specified advance of ₹20,000 or more, you cannot hand back cash. You must repay only through a banking or electronic channel that leaves a paper/digital trail.
The core rule
- Who is covered: a branch of a banking company or co-operative bank, any other company or co-operative society, any firm, and any "other person" (which includes individuals and HUFs carrying value). Essentially, the person making the repayment is bound by this section.
- Permitted modes only: repayment must be by account payee cheque, account payee bank draft drawn in the name of the person who made the loan/deposit/advance, or by electronic clearing system through a bank account or any other prescribed electronic mode (NEFT, RTGS, IMPS, UPI, etc.).
- Cash is prohibited for any covered repayment at or above the threshold.
The ₹20,000 threshold — and how "aggregate" works
The bar bites when any one of these equals or exceeds ₹20,000:
- the amount of the loan or deposit or specified advance (together with any interest) being repaid; or
- the aggregate amount of such loans/deposits/advances held by the person, whether in his own name or jointly with any other person, on the date of repayment (including interest).
This "aggregate" test is important: you cannot escape the section by splitting one big repayment into several small cash instalments. If the total outstanding is ₹20,000 or more, every rupee of that repayment must go through banking channels.
Exceptions — when Section 188 does NOT apply
Cash repayment is not restricted where the loan/deposit/specified advance was taken from, or is repaid to, the following:
- Government;
- any banking company, post office savings bank or co-operative bank;
- any corporation established by a Central, State or Provincial Act;
- any Government company as defined in the Companies Act, 2013;
- any institution, association, body or class of institutions notified by the Central Government.
Higher ₹2,00,000 limit for agriculture: where a primary agricultural credit society or a primary co-operative agricultural and rural development bank is involved, the threshold is read as ₹2,00,000 instead of ₹20,000, easing rural credit repayments.
A special convenience for banks
A branch of a banking company or co-operative bank may also repay a loan or deposit by crediting the amount to the savings or current account of the person to whom repayment is due, if that person holds an account with the same branch. This is treated as a valid non-cash mode.
Definitions that matter
- Loan or deposit: any loan or deposit of money which is repayable after notice or after a period; for persons other than companies it covers a loan or deposit of any nature.
- Specified advance: any sum of money in the nature of an advance received in relation to transfer of immovable property, whether or not the transfer eventually happens.
How it interacts with related sections
- Section 185 is the mirror image — it restricts taking or accepting loans, deposits and specified sums in cash of ₹20,000 or more (successor to Section 269SS). Section 188 governs repayment.
- Section 453 imposes the penalty for breaching Section 188 (successor to Section 271E). Under the 2025 Act, the penalty is now leviable by the Assessing Officer (earlier it was the Joint Commissioner).
Practical implications
- Always repay business or personal loans and deposits of ₹20,000+ by cheque, bank draft or electronic transfer — never cash.
- Booking advance-money refunds on a cancelled property deal? Return it electronically, because "specified advance" is expressly covered.
- Keep bank statements and cheque counterfoils; these are your evidence that the repayment mode was compliant.
💡 Example
Worked example 1 — a simple loan repayment. Rakesh borrowed ₹1,50,000 from his friend Suresh two years ago. He now wants to clear it. If Rakesh pays back even a single ₹25,000 instalment in cash, he violates Section 188, because both the instalment (₹25,000) and the aggregate loan (₹1,50,000) exceed ₹20,000. The penalty under Section 453 can be equal to the amount repaid in cash — ₹25,000. The safe route: pay by account payee cheque or UPI/NEFT to Suresh.
Worked example 2 — the aggregate trap. A firm holds a ₹40,000 deposit from a supplier. Thinking small cash payments are fine, it repays in four cash tranches of ₹10,000 each. Each tranche is below ₹20,000, but the aggregate deposit is ₹40,000, so the section still applies. The entire ₹40,000 is a contravention, exposing the firm to a penalty of up to ₹40,000.
A relatable story. Meena, a Jaipur boutique owner, took a ₹1,00,000 advance from a buyer for a shop she agreed to sell, then the deal fell through. Wanting to seem generous, she returned the full ₹1,00,000 in cash the same afternoon. Her CA later flagged it: a refund of a "specified advance" of ₹20,000 or more must go through banking channels under Section 188. Because she paid cash, she faced a penalty equal to ₹1,00,000. Had she simply done an NEFT transfer, there would have been zero exposure — the lesson every taxpayer should remember.
| Aspect | Rule under Section 188, Income-tax Act 2025 |
|---|
| What it governs | Repayment of loans, deposits and specified advances |
| 1961 Act equivalent | Section 269T |
| Effective from | 1 April 2026 |
| General threshold | ₹20,000 (single amount or aggregate, incl. interest) |
| Agriculture threshold | ₹2,00,000 (primary agri credit society / co-op agri & rural dev bank) |
| Permitted modes | Account payee cheque, account payee bank draft, ECS / prescribed electronic mode; bank may credit to payee's account at same branch |
| Cash allowed? | No, at or above the threshold |
| Key exceptions | Government, banking company, post office, co-op bank, statutory corporations, Government companies, notified institutions |
| Penalty section | Section 453 (successor to 271E) — penalty equal to amount repaid; levied by Assessing Officer |
Related sections
Section 185 — Mode of taking or accepting certain loans, deposits and specified sum (successor to 269SS) Section 453 — Penalty for failure to comply with repayment mode (successor to 271E) Section 187 — Restriction on cash transactions / mode of undertaking transactions Section 269ST (1961) — Restriction on cash receipts of ₹2,00,000 or more Section 161 — Computation of income from international and specified domestic transactions (transfer pricing)
Frequently asked questions
Does Section 188 have anything to do with transfer pricing?
No. Despite some index labels, Section 188 deals with the mode of repaying loans, deposits and specified advances. Transfer pricing is covered by Sections 161 to 173 of the Income-tax Act, 2025.
What is the old section number for Section 188?
Section 188 of the 2025 Act corresponds to Section 269T of the Income-tax Act, 1961. The rules are substantially the same, with modernised drafting and updated penalty authority.
Can I repay a ₹15,000 loan in cash?
Yes, if both the single repayment and the total outstanding loan/deposit are below ₹20,000. The restriction only bites at or above the ₹20,000 threshold.
What counts as a permitted mode of repayment?
Account payee cheque, account payee bank draft in the payee's name, or electronic clearing/prescribed electronic modes such as NEFT, RTGS, IMPS or UPI. A bank may also credit the amount to the payee's account at the same branch.
What is the penalty for repaying a loan in cash above the limit?
Under Section 453 (successor to Section 271E), the penalty can be equal to the amount of the loan or deposit repaid in the prohibited manner. It is now levied by the Assessing Officer.
Is a property advance refund covered by Section 188?
Yes. A 'specified advance' is money received in relation to transfer of immovable property, whether or not the transfer happens. Its repayment of ₹20,000 or more must go through banking channels.
Is there any relaxation for agricultural credit societies?
Yes. For a primary agricultural credit society or a primary co-operative agricultural and rural development bank, the threshold is ₹2,00,000 instead of ₹20,000.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 04 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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