You can repay your loan amount to any HFC (Housing finance company) or NBFC (Non-banking finance company) in cash provided each loan instalment is less than Rs 2 lakh.
The government in the last budget introduced Section 269ST, whereby it prohibited the cash transactions exceeding Rs 2 lakhs with a view to promote digital economy.
Section 269ST prohibits any person to receive amount of Rs. 2 lakh and above in cash:
(i) In aggregate from a person in a day, or
(ii) In a single transaction, or
(iii) In respect of transactions relating to one event or occasion from a person .
Subsequently after introducing this section, various representations were sent by non-banking financial companies (NBFCs) and housing finance companies (HFCs) as to whether the limit of Rs 2 lakh shall apply to one instalment of loan repayment or for the whole amount of such repayment.
In this context, the income tax department clarified that if you are repaying the loan to NBFCs or HFCs, then the one instalment of loan repayment shall constitute a single transaction. And so if the single loan instalment amount is less than Rs 2 lakhs, it can be paid in cash. All the instalments paid for a loan shall not be aggregated for the purposes of determining applicability of Rs 2 lakh limit.
Introduction of Penal Provisions
The government has also introduced penalty provisions in case of section 269ST is violated. If a person receives the amount in cash over the above specified limit of Rs 2 lakhs, then he shall be liable to pay a penalty equal to the amount received in cash. Thus it is very important to ensure that you do not receive cash of Rs 2 lakhs and above for a single transaction, aggregate from a person in a day or in respect of transactions relating to one event or occasion from a person. For details refer here
(As per the CBDT circular no 22/2017 dated 3rd July,2017)