New Delhi, June 10 -- Borrowing cash from friends or relatives may seem convenient, but it can attract hefty tax penalties if certain limits are breached. Under the income tax law, a person cannot accept or repay a loan or deposit of Rs.20,000 or more in cash.

The restriction applies even when the transaction is between friends or family members, and violations can attract a penalty equal to the amount of the loan or repayment. For example, if a loan is accepted by an individual in the amount of Rs.1 lakh, this penalty would also be in the amount of Rs.1 lakh.

To avoid such scrutiny, any amount above the prescribed limit should be routed through banking channels, such account transfers, cheques, demand drafts, or other prescribed digita...