Section 450 of the Income-tax Act, 2025 — Penalty for Accepting Cash Loans, Deposits or Specified Sums in Breach of Section 185

In plain language

What Section 450 actually says

Section 450 of the Income-tax Act, 2025 imposes a penalty when a person takes or accepts any loan, deposit or specified sum in breach of Section 185 of the same Act. In plain words: if you accept a loan or deposit of ₹20,000 or more in cash (instead of through banking channels), the Assessing Officer can charge you a penalty equal to the entire amount of that loan or deposit.

This is the 2025 Act successor to the well-known Section 271D read with Section 269SS of the Income-tax Act, 1961. The core rule is unchanged, but one important thing has shifted: the penalty is now imposed by the Assessing Officer, whereas under the old law it was the Joint Commissioner.

Note on scope: Section 450 has nothing to do with transfer pricing or associated-enterprise (AE) reporting. It is squarely a cash-transaction / black-money control provision.

What Section 185 requires (the rule being enforced)

• Mode of acceptance: A loan, deposit or specified sum of ₹20,000 or more can be accepted only by account-payee cheque, account-payee bank draft, electronic clearing system (ECS) through a bank account, or another prescribed electronic mode (UPI, NEFT, RTGS, IMPS).
• Aggregation: The ₹20,000 limit applies not just to a single transaction but also where the amount already outstanding plus the new amount is ₹20,000 or more.
• "Specified sum" means any sum of money receivable (whether as advance or otherwise) in relation to transfer of immovable property — this catches cash advances on property deals.

Who it applies to

• Any "person" — individuals, HUFs, firms, LLPs, companies, AOPs, trusts. The penalty falls on the recipient of the cash, not the payer.
• Businesses accepting cash loans from directors/relatives, builders taking cash property advances, and firms borrowing cash are the most common cases.

Key exemptions — when no penalty arises

• Loans/deposits accepted from or by the Government, banks, co-operative banks, post office savings banks, and notified corporations/institutions.
• Where both parties have only agricultural income and no income taxable under the Act.
• For a member dealing with a primary agricultural credit society or primary co-operative agricultural and rural development bank, the threshold is raised to ₹2,00,000.

How it interacts with related sections

• Section 186 + Section 451 deal with the mirror rule — the repayment of loans/deposits in cash (successor to Section 269T / 271E). Accepting cash triggers Section 450; repaying cash triggers Section 451.
• Section 470 gives a "reasonable cause" defence — if you prove there was a genuine, bona fide reason for the failure, no penalty shall be imposed.
• Section 471 guarantees natural justice: no penalty order can be passed without a show-cause notice and a reasonable opportunity of being heard.

Practical implications

• The penalty is 100% of the amount — an ₹8 lakh cash loan means an ₹8 lakh penalty, on top of any tax. It is a deterrent, not a slap on the wrist.
• Because the AO now levies it directly, expect it to surface routinely during scrutiny assessments once the auditor flags cash entries in Form 3CD.
• The safest practice is simple: never accept ₹20,000 or more in cash as a loan, deposit or property advance. Always route it through banking or verified electronic modes and keep proof.
• Genuine emergencies, journal entries and bona fide book adjustments have historically been protected under the "reasonable cause" defence — but the burden of proof is on you.