A person may have to pay penalty for taking loan or deposit of more than Rs.20000/-

Income Tax Authorities may uncover hidden and unaccounted cash during their raids. Earlier, the culprit would escape by saying that he received the cash as loan or deposit from relatives or friends. Also, the persons with an aim of tax evasion would do false transactions showing payment and repayment of loans and deposits in cash. 

To restrain the increasing cash transactions which are leading to the accumulation of black money, 269SS and 269T of the Income Tax Act were introduced which restricts these cash payments. 

According to section 269SS, no person shall take or accept from any other person (herein referred to as the depositor), any loan or deposit or any specified sum, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed, if,—

(a)  the amount of such loan or deposit or specified sum or the aggregate amount of such loan, deposit and specified sum; or

(b)  on the date of taking or accepting such loan or deposit or specified sum, any loan or deposit or specified sum taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), the amount or the aggregate amount remaining unpaid; or

(c)  the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b), is Rs.20,000/- or more:

Provided that the provisions of this section shall not apply to any loan or deposit or specified sum taken or accepted from, or any loan or deposit or specified sum taken or accepted by,—

(a)  the 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 clause (45) of section 2 of the Companies Act, 2013 (18 of 2013);

(e)  such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette:

Provided further that the provisions of this section shall not apply to any loan or deposit or specified sum, where the person from whom the loan or deposit or specified sum is taken or accepted and the person by whom the loan or deposit or specified sum is taken or accepted, are both having agricultural income and neither of them has any income chargeable to tax under this Act.

Explanation.—For the purposes of this section,—

(i)  "banking company" means a company to which the provisions of the Banking Regulation Act, 1949 (10 of 1949) applies and includes any bank or banking institution referred to in section 51 of that Act;

(ii)  "co-operative bank" shall have the same meaning as assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949) ;

(iii) "loan or deposit" means loan or deposit of money;

(iv) "specified sum" means any sum of money receivable, whether as advance or otherwise, in relation to transfer of an immovable property, whether or not the transfer takes place.

For example, Sandip wants to take a loan of Rs 50,000 from Joy, he cannot accept it in cash because it will violate Section 269SS as the amount is more than Rs 20,000.

For example – Sandip wants to take a loan of Rs. 6,000, a deposit of Rs. 9,000 and advance of Rs. 7,000 from Joy, he cannot accept it in cash because the total sum is 22,000.

As per the income tax rules, the specified modes of accepting loan or deposit or specified sums are:

Account payee cheque/bank draft,

Electronic Clearing System (ECS) through a bank account; or

Net Banking;

Credit Card;

Debit Card;

RTGS;

NEFT;

BHIM,

IMPS; and

UPI.

Example: Mr Joy had accepted a loan from Sandip on 1st April 21 by account payee cheque for Rs 10,000. He had repaid 3,000 in cash on 3rd Sep 2021. On 5th September 2021 Mr Joy takes another loan from Sandip for Rs 15000 in cash (the earlier loan remaining unpaid on the date). Since the combined loan outstanding is Rs 22,000 (10,000 – 3,000 + 15,000) that is more than Rs 20,000, the provisions of Sec 269SS are violated.

Penalty on contravention of Section 269SS

100% of the loan or deposit amount will be the quantum of penalty that can be levied by the assessing officer. A person accepting the loans and deposits in cash above the prescribed limit is liable to pay such penalty. Hence, the receiver of the money is required to ensure that the the provisions of Section 269SS are complied while accepting payments.

According to section 269T, no branch of a banking company or a co-operative bank and no other company or co-operative society and no firm or other person shall repay any loan or deposit made with it or any specified advance received by it otherwise than by an account payee cheque or account payee bank draft drawn in the name of the person who has made the loan or deposit or paid the specified advance, or by use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed12 if—

(a)  the amount of the loan or 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 in his own name or jointly with any other person on the date of such repayment together with the interest, if any, payable on such loans or deposits, or

(c)  the aggregate amount of the specified advances received by such person either in his own name or jointly with any other person on the date of such repayment together with the interest, if any, payable on such specified advances, is Rs.20,000/- or more:

Provided that where the repayment is by a branch of a banking company or co-operative bank, such repayment may also be made by crediting the amount of such loan or deposit to the savings bank account or the current account (if any) with such branch of the person to whom such loan or deposit has to be repaid :

Provided further that nothing contained in this section shall apply to repayment of any loan or deposit or specified advance taken or accepted from—

 (i)  Government;

(ii)  any banking company, post office savings bank or co-operative bank;

(iii) any corporation established by a Central, State or Provincial Act;

(iv) any Government company13 as defined in section 617 of the Companies Act, 1956 (1 of 1956);

(v) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette.

Explanation.—For the purposes of this section,—

 (i)  "banking company" shall have the meaning assigned to it in clause (i) of the Explanation to section 269SS;

(ii)  "co-operative bank" shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949);

(iii) "loan or deposit" means any loan or deposit of money which is repayable after notice or repayable after a period and, in the case of a person other than a company, includes loan or deposit of any nature;

(iv) "specified advance" means any sum of money in the nature of advance, by whatever name called, in relation to transfer of an immovable property, whether or not the transfer takes place.

Reporting of 269SS & 269T Transactions

In clause 31 of Form 3CD, the tax auditor has to report the transactions that have been hit by the provisions of Sections 269SS and 269T . Both the parties (payer and receiver) have to report the transactions.

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