prpri Acceptance / Repayment of Loan in Cash- Section 269SS/ 269T Acceptance / Repayment of Loan in Cash- Section 269SS/ 269T
Nitisha Malpani

nitisha-malpaniObject:

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.

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.

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.

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.

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.

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.

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 studies on Section 269SS/269T:

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

Case Study 1. Loan from Gabbar Singh

Date Particulars Amount Date Particulars Amount
30/04/20 To Bank A/c 21,000 01/04/20

20/04/20

By Balance b/d

By Cash A/c

19,000

2,000

21,000

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

30/06/20

To Bank A/c

To Balance c/d

25,000

10,000

12/06/20

15/06/20

By Bank A/c

By Cash A/c

25,000

10,000

35,000 35,000
15/09/20 To Bank A/c 23,000 01/07/20

02/08/20

31/08/20

01/09/20

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/-.

Answers to case studies:

Case study 1:

Loan from Gabbar Singh

Date Particulars Amount Date Particulars Amount
30/04/20 To Bank A/c 21,000 01/04/20

20/04/20

By Balance b/d

By Cash A/c

19,000

2,000

21,000

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

30/06/20

To Bank A/c

To Balance c/d

25,000

10,000

12/06/20

15/06/20

By Bank A/c

By Cash A/c

25,000

10,000

X
35,000 35,000
15/09/20 To Bank A/c 23,000 01/07/20

02/08/20

31/08/20

01/09/20

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, 2020, the balance in Loan A/c from Gabbar Singh stands at Rs.19,000/-.On 20/04/20, further Rs. 2,000/- are taken in cash on the same loan Account, so it will attract 100% penalty. On 30th April, 2020, 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, 2020, Rs. 19,000/- are taken on loan in cash and on 15th May, 2020, 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, 2020, loan of Rs. 25,000/- is again taken through cheque. On 3rd June, 2020, 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, 2020, 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, 2020, which will again attract 100% penalty due to the same reason.

v) Again on 12th June, 2020, Rs. 25,000/- are taken on the same Loan A/c in cheque. On 15th, June, 2020, 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, 2020, 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, 2020. 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, 2020 Rs. 1,000/- are taken on loan in cash. It will be against the provisions of section 269SS 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.

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.

Disclaimer: The contents of this article are for information purposes only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.

(Republished with Amendments by Team Taxguru)

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42 Comments

  1. ca_rohan says:

    A Nidhi Company Accepting deposits from its members in Cash. Whether Section 269SS/T/ST Applicable on such transaction or deposits?

  2. Nishchint Kumar says:

    269as and 269at me limit 20000 hai ja 2 lakh? Bahut si websites pe 2 lakh likha hai bahut par 20000, please clear kare

    NBFC gold loan cash me 2lakh dete hai kya je sahi hai?

  3. Rajesh Maheshwari says:

    What are the provisions for NBFCs and private Financers who give loans for buying transport vehicles ? They accept cash against instalments/EMIs from curtomers/Loanees. What shall be the consequences on such customers/Loanees as they are repaying in cash for loans/finance > 20000/-?

  4. nilesh says:

    what happens when the loan amount is transferred from father to son …in the event of death of father.
    I am sure this cannot be taxed… please give me the exemption details

  5. Rajgopal says:

    There is no penalty for the person giving a loan in cash even if the amount is over Rs. 20,000/ ? Similarly, there is no penalty if he accepts the return of the loan over Rs. 20,000/- in cash? Am I right?

  6. 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.

  7. 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

  8. 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 |

  9. 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?

  10. 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.

  11. 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?

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