Nitisha Malpani

nitisha-malpani1. Object:

The provision of 269SS and 269T has been enacted in order to prevent the increase in black money and to stop tax evasion. It ensures that the taxpayer does not give any false explanation for his unaccounted money.

2. Acceptance of Cash Deposits

Section 269SS provides that any loan or deposit shall not be taken or accepted by any person from any other person otherwise than by an account payee cheque or account payee bank draft if,

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

(b) on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid and 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:

Thus it is clear that no person can accept any loan or deposit of Rs. 20,000 or more otherwise than by way of an account payee cheque or an account payee draft. The limit of Rs. 20,000 will also apply to a case even if on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from such depositor is remaining unpaid and such unpaid amount along with the loan or deposit to be accepted, exceeds the aforesaid limit.

This can be explained with an example: If Mr. X has a credit balance of a loan of Rs 19000 from Mr. Y. Now in this case Mr. X cannot take loan in excess of Rs 999 more from Mr. Y except with an account payee cheque or account payee bank Draft.

3. Repayment of Cash Deposits

Section 269T of Income Tax Act provides that any branch of a banking company or a cooperative society, firm or other person shall not repay any loan or deposit
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, if

(a) The amount of the loan or deposit together with interest is Rs 20000 or more, or

(b) The aggregate amount of loans or deposits held by such person, either in his own name or jointly with other person on the date of such repayment together with interest, is Rs 20000 or more.

For example if X is having loan of Rs 30000 outstanding to Y. Then X cannot repay such loan in cash to Y.

4. Exemption:

As per proviso of section 269SS and section 269T, section is not applicable on any loan or deposit 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 617 of the Companies Act, 1956 (1 of 1956) ;

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.

5. Consequences of contravention of section 269SS:

Section 271D of Income Tax Act 1961 provides that if a loan or deposit is accepted in contravention of the provisions of section 269SS then a penalty equivalent to the amount of such loan or deposit, so taken or accepted, may be levied by the Joint commissioner.

6. Consequences of contravention of section 269T:

Section 271E of Income Tax Act 1961 provides that if a loan or deposit is repaid in contravention of the provisions of section 269T then a penalty equivalent to the amount of such loan or deposit repaid may be levied by the Joint commissioner.

7.Let us try to understand the above mentioned provisions by way of following case studies. Answers to them are mentioned towards the end of the article .

Case study 1

In the following cases, whether section 269SS/269T will be attracted?

Case Study 1. Loan from Gabbar Singh

Date Particulars Amount Date Particulars Amount
30/04/06 To Bank A/c 21,000 01/04/06

20/04/06

By Balance b/d

By Cash A/c

19,000

2,000

21,000

21,000
15/05/06 To Cash A/c 19,000 01/05/06 By Cash A/c 19,000
19,000 19,000
03/06/06 To Cash A/c 25,000 01/06/06 By Bank A/c 25,000
25,000 25,000
10/06/06 To Cash A/c 25,000 05/06/06 By Cash A/c 25,000
25,000 25,000
20/06/06

30/06/06

To Bank A/c

To Balance c/d

25,000

10,000

12/06/06

15/06/06

By Bank A/c

By Cash A/c

25,000

10,000

35,000 35,000
15/09/06 To Bank A/c 23,000 01/07/06

02/08/06

31/08/06

01/09/06

By Balance b/d

By Cash A/c

By Interest

By Cash A/c

10,000

9,000

3,000

1,000

23,000 23,000

 Case study 2:

Mr. Santa has taken loan of Rs. 1,00,000/- in cash for the wedding of his daughter from Mr. Banta.

Case study 3:

Mr. Ram paid Rs. 5,00,000/- in cash against loan taken by his father after his death.

Case study 4:

Gold Safe Trading Company Ltd received Rs. 50,000/- in cash against share application.

Case study 5:

Haldiram Pvt Ltd received advance of Rs. 2,00,000/- from customer. However, subsequently, the deal could not be materialized and amount was refunded in cash.

Case study 6:

ABC & Co. is a partnership concern. Mr. A, who is partner of the firm, introduced capital by way of cash of Rs. 50,000/-.

8. Special Considerations for Audit:

While reporting the details of loans and deposits in Tax Audit report, following points need to be considered:

(a) Details as per following format to be taken and verify the same:
Name & Address and PAN
Opening Balance
Amount Received
Amount Paid
Interest Credited
TDS Deduction
Closing Balance
Maximum Outstanding

(b) Squared –Up means Loans taken and repaid in the same assessment year.

(c) All Loans or Deposits are to be reported even if they are grouped under Debtors or creditors.

(d) Even if the loans are taken free of interest the information will still have to be given.

(e) Loans and deposits taken or accepted by means of transfer entries constitute acceptance of deposits or loans otherwise than by account payee cheques.

(f) Scrutinize Cash book to find out Loans or deposits taken or repaid in cash.
Answers to case studies:

Case study 1:

Loan from Gabbar Singh

Date Particulars Amount Date Particulars Amount
30/04/06 To Bank A/c 21,000 01/04/06

20/04/06

By Balance b/d

By Cash A/c

19,000

2,000

21,000

X
21,000
15/05/06 To Cash A/c 19,000 01/05/06 By Cash A/c 19,000
19,000 19,000
X 03/06/06 To Cash A/c 25,000 01/06/06 By Bank A/c 25,000
25,000 25,000
X 10/06/06 To Cash A/c 25,000 05/06/06 By Cash A/c 25,000 X
25,000 25,000
20/06/06

30/06/06

To Bank A/c

To Balance c/d

25,000

10,000

12/06/06

15/06/06

By Bank A/c

By Cash A/c

25,000

10,000

X
35,000 35,000
15/09/06 To Bank A/c 23,000 01/07/06

02/08/06

31/08/06

01/09/06

By Balance b/d

By Cash A/c

By Interest

By Cash A/c

10,000

9,000

3,000

1,000

X

23,000 23,000

i) On 1st April, 2006, the balance in Loan A/c from Gabbar Singh stands at Rs.19,000/-.On 20/04/06, further Rs. 2,000/- are taken in cash on the same loan Account, so it will attract 100% penalty. On 30th April, 2006, the loan is repaid by a cheque of Rs. 21,000/, which is correct and does not attract any penalty.

ii) Again on 1st May, 2006, Rs. 19,000/- are taken on loan in cash and on 15th May, 2006, it is repaid in cash. It is correct because the balance due in the Loan account is less than Rs. 20,000/- and hence it does not attract any penalty.

iii) On 1st June, 2006, loan of Rs. 25,000/- is again taken through cheque. On 3rd June, 2006, it is repaid in cash, which is not correct as it is against the provisions and so it will attract 100% penalty.

iv) On 5th June, 2006, Loan of Rs. 25,000/- is again taken in cash. It will attract 100% penalty as it exceeds the permissible limit of Rs. 20,000/-. The same loan is repaid in cash on 10th June, 2006, which will again attract 100% penalty due to the same reason.

v) Again on 12th June, 2006, Rs. 25,000/- are taken on the same Loan A/c in cheque. On 15th, June, 2006, Rs.10, 000/- are taken on loan in cash. This amount of Rs. 10,000/- will attract 100% penalty because the balance in the Loan Account is more than Rs. 20,000/-.

vi) On 20th June, 2006, Rs. 25,000/- are repaid in cheque which is correct and does not attract any penalty.

vii) Rs. 9,000/- are taken on loan in cash on 1st August, 2006. It is correct because the amount is less than Rs. 20,000/-. Rs. 3,000 are earned as interest which are credited to the Loan Account. On 1st September, 2006 Rs. 1,000/- are taken on loan in cash. It will be against the provisions of section 269 SS as the balance in the Loan Account is more than Rs. 20,000/- and hence it will attract 100% penalty. The balance due in the Loan Account of Rs. 23,000/- is repaid in cheque, which is correct and according to the provisions.

Case study 2:

Yes, the provisions of Section 269SS are applicable to every person taking or accepting any loan or deposit exceeding Rs.20000 whether it’s personal or not.

Case study 3:

Yes, the provisions of Section 269T are applicable to every person on repayment of any loan or deposit exceeding Rs.20000.

Case study 4:

The amount paid in support of an application of shares must be considered to be a deposit u/s 269SS till the allotment or refund of the money on rejection of the application.

Case study 5:

The provisions of section 269SS and 269T are applicable in case of loan or deposits and not in case of advance. Hence, the money relieved are outside the ambit of the section 269SS.

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Tags : section 269SS (81) Section 269T (50)

32 responses to “Acceptance / Repayment of Loan in Cash- Section 269SS/ 269T”

  1. MITUL MEHTA says:

    THE DIRECTOR OF THE CO. HAS PAID CO.’S TAX LIABILITY ON BEHALF OF THE COMPANY. SO WHETHER IN BOOKS OF CO. IT WILL BE LOAN FROM DIRECTOR THROUGH BOOK ENTRY LIABLE TO PENALTY U/S. 269SS.

  2. Praveen kr saini says:

    यदि कोई आदमी अपने घर को बेक़ते समय 180000 रुपए नगद लेता है ओर बाकी 1100000 रुपए cheque से लेता है सारा रुपए registry doc में लिखा गया हो, तो क्या 269ss के अनुसार कोई समस्या होगी

  3. Hemant Kathuria says:

    Does payment of chit subscription Rs. 20,000 for 20 months in cash attract 269SS. Thanks

  4. संजय जैन says:

    यदि कोई कृषि भूमि का सौदा अप्रेल 2015 में होता है एवं पेमेंट प्राप्ति की कंडीशन आगामी 3 वर्ष की है तथा पेमेंट कैश प्राप्त किया जाता है तो 269ss की कहा परेशानी आएगी |

  5. Agarwal Jain & Co. says:

    my one client has received cash worth Rs.5,00,000/- from one of his relative and deposited the same in his business current account for the payment to the suppliers.

    Are there any problems in future regard to recent scenario of income tax?

  6. Sanjay Rai says:

    Nicely explain with the case study and also with the reference of the actual cases.
    I hope more will come. good luck.

  7. Sreenivasa says:

    Whether a banker can refuse to pay balance in Savings bank account of Rs.25000/- in cash at the time of closure of SAvings bank account. 269 T clearly says that deposit on notice or repayable after a period.

  8. Pushpadantha says:

    What is answer for the Case Study 6?

  9. rakesh kedia says:

    whetther the payment of interest on unsecured loan is reportable in 3cd under clause 31c or not

  10. rcjain says:

    I am registered pawnbroker lending money more than rupees 20000 to a person.Is any income tax provisions applicable for me.

  11. Krishnamurthy Iyer says:

    Does it apply only to repayment of loan or will it apply for repayment of EMI as well?

    • Nitisha Malpani says:

      Whenever Loan account outstanding balance together with Interest is more than Rs. 20,000, than no part of Loan shall be paid in any form other than account payee cheque.
      EMI is an method to pay loan amount and Interest in equal installments, therefore, if provisions of section 269T are violated, than penalty be leviable

  12. Anu Verma says:

    Nice article. Thanks Nitisha

  13. Sanjay Kumar Garg says:

    If we have a NBFC co then we can give or accept more then 20000/- yes or not

    • Nitisha Malpani says:

      THERE IS NO SPECIFIC EXEMPTION TO NBFCS. THERE FORE SEC 269SS, 269T, SEC 194A ETC ARE APPLICABLE TO NBFCS. THEREFORE, REPAYMENT OF LOAN TO NBFC IN CASH WILL ATTRACT 269T PROVISIONS

  14. C M Philip says:

    Is the provisions applicable to nidhi company in giving gold loans to its members? Can you please explain

  15. sarika says:

    Hello, I have a homeloan from SBI, If my brother working in UK transfers 5 Lac to my loan account.thru bank only(online transfer) Will any penalty be imposed on me?

  16. Sumsec says:

    If the loan is transferred by way of Novation entries to another person will that be treated violation of 269 T?

    • Nitisha Malpani says:

      Provisions of section 269SS and 269T are not applicable in case where there are
      journal entries and payment was ultimately paid through account payee cheque. Commissioner
      Of Income-Tax vs Noida Toll Bridge Co. Ltd. (2003) 184 CTR Del 266. Further
      acknowledgement of debt by the assessee company by passing a journal entry in the books of
      accounts would not come within the ambit of the words “loans or deposits of money” as
      mentioned in Section 269 SS., Sunflower Builders Pvt. Ltd. 61 ITD 227, V.N. Parekh securities
      Pvt. Ltd. (ITA No.3316 & 3317/Mum/2004)

  17. Rakesh Bansal says:

    Cash deposit limit should be rs 100000./-

    • Nitisha Malpani says:

      Sir,
      The idea behind such stringent provisions was to prevent the increase in black money and to stop tax evasion. Current Provisions are trying to ensure that the taxpayer doesn’t give any false explanation about his unaccounted money.
      Motive could not have been achieved if the limit was Rs. 100000

  18. ch v ramesh says:

    Hi Sir, Is 269SS/269T sections applicable, if the partner brings additional capital in the form of Cash in partnership firm ?

    • Nitisha Malpani says:

      If a partner introduces additional capital in cash in the firm or withdraws the same to the tune of Rs 20000 or in excess of Rs 20000 in any mode other than account payee cheque or account payee draft, then Provisions of section 269SS or 269T shall not be attracted as the introduction of capital or withdrawal from firm cannot be called as loans or deposits.

  19. srinivas says:

    very clearly explained the provision.
    &what about the case study6?

    • Nitisha Malpani says:

      If a partner introduces capital in cash in the firm or withdraws the same to the tune of Rs 20000 or in excess of Rs 20000 in any mode other than account payee cheque or account payee draft, then Provisions of section 269SS or 269T shall not be attracted as the introduction of capital or withdrawal from firm cannot be called as loans or deposits.

    • Nitisha Malpani says:

      If a partner introduces capital in cash in the firm or withdraws the same to the tune of Rs 20000 or in excess of Rs 20000 in any mode other than account payee cheque or account payee draft, then Provisions of section 269SS or 269T shall not be attracted as the introduction of capital or withdrawl from firm cannot be called as loans or deposits.

  20. B.Srinu says:

    Nice article. Could you please explain consequences, if Auditor has not reported transactions of 269SS & 269T in tax audit report ?

    • Nitisha Malpani says:

      It may be noted that when any question relating to the audit conducted by a tax auditor arises, he is answerable to the Council of the Institute under the Chartered Accountants Act.

      In case the assessee is found guilty of not disclosing such transactions, would not ipso facto mean that the tax auditor is also responsible. If the Assessing Officer comes to the conclusion that the tax auditor was grossly negligent in the performance of his duties, he can refer the matter to the ICAI so that appropriate action can be taken against the tax auditor under the Chartered Accountants Act.

    • Nitisha Malpani says:

      It may be noted that when any question relating to the audit conducted by a tax auditor arises, he is answerable to the Council of the Institute under the Chartered Accountants Act.

      In case the assessee is found guilty of not disclosing such transactions it would not ipso facto mean that the tax auditor is also responsible. If the Assessing Officer comes to the conclusion that the tax auditor was grossly negligent in the performance of his duties, he can refer the matter to the ICAI so that appropriate action can be taken against the tax auditor under the Chartered Accountants Act.

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