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“Curbing cash transactions: Section 269SS of Income Tax Act mandates electronic modes for loans above ₹20,000 to fight black money. Understand the provisions, penalties for non-compliance, and FAQs.”

In order to curb cash transactions resultantly restricting black money circulation, two sections i.e. 269SS and 269T of the Income Tax Act were introduced. Both the said section deals with –

1. Section 269SS of the Income Tax Act deals with the modes of taking/ accepting certain loans, deposits and specified sums;

2. Section 269T of the Income Tax Act deals with the modes of repayment of certain loans or deposits.

In simple terms, according to both the sections, the person is restricted from taking/ accepting and the person is restricted from repaying the loans or deposits in cash above the specified limit.

In the present article, we will thoroughly understand the provisions of section 269SS of the Income Tax Act, 1961.

Provisions of section 269SS of Income Tax Act, 1961

According to the provisions of section 269SS of the Income Tax Act, the person cannot take/ accept, any loan/ deposits/ specified sum from any other person, other than the specified mode (i.e. account payee cheque/draft or use of electronic clearing system or other electronic modes) under the following situations –

1. The amount of loan/ deposits/ specified sum is INR 20,000 or more;

2. The aggregate amount of loan and deposits and the specified sum is INR 20,000 or more;

3. The amount or aggregate amount of loan/ deposits/ specified sum taken or accepted earlier by the person from the depositor of INR 20,000 or more is remaining unpaid as on the date of taking/ accepting new loan/ deposits/ specified sum.

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

Summing up, any person cannot take/ accept any loan/ deposit/ specified sum in cash for INR 20,000 or more.

Provisions of section 269SS of the Income Tax Act are simplified via the following illustrations –

Illustrations

Analysis based on section 269SS provisions
Mr. A is taking loans of INR 50,000 in cash from Mr. B Transaction is hit by provisions of section 26SS as the person cannot take a loan of INR 20,000 or more in cash.
Mr. A is taking a loan of INR 10,000 in cash and also accepting deposits of INR 30,000 in cash from Mr. B. Transaction is hit by provisions of section 26SS as the person cannot take/ accept the total of loan and deposit and specified sum of INR 20,000 or more in cash.
Mr. A is taking a loan of INR 10,000 in cash from Mr. B.

Mr. A is also accepting deposits of INR 15,000 in cash from Mr. C.

Transaction is not hit by provisions of section 269SS as loan/ deposit in cash is not INR 20,000 or more from one person.
Mr. A had taken a loan of INR 15,000 in cash in April from Mr. B which is unpaid. Mr. A is again taking a loan of INR 15,000 in cash in August from Mr. B. Transaction is hit by provisions of section 269SS as the amount remaining unpaid will be INR 30,000 [INR 15,000 + INR 15,000].

Categories of persons exempted from provisions of section 269SS of Income Tax Act, 1961

Notably, provision of section 269SS is not applicable to any loan/ deposit/ specified sum taken or accepted from or any loan/ deposit/ specified sum taken or accepted by the following –

1. The Government;

2. Any banking company;

3. Any post office saving bank;

4. Any co-operative bank;

5. Any corporation;

6. Any Government company;

7. Notified institution/ association or body or class of institution/ associations or bodies;

8. Both the persons (i.e. person from whom loan/ deposits/ specified sum is taken or accepted and person by whom loan/ deposits/ specified sum is taken or accepted) are having only agricultural income;

9. Other exceptions –

a. Receipt of cash from relatives during the time of emergency. Importantly, the intention should not be to evade taxation.

b. Contribution of cash capital by partners into the partnership firm.

c. Mere book entry, wherein, no money is received either in cash or any other form.

Income Tax

Specified modes for taking/ accepting loans/ deposits/ specified sum –

Modes through which any amount of loans/ deposits/ specified sum can be taken/ accepted are listed hereunder –

1. Account payee cheque;

2. Account payee bank draft;

3. Via electronic clearing system through a bank account;

4. Other electronic modes as specified under rule 6ABBA of the Income Tax Rules –

a. Debit card;

b. Credit card;

c. Immediate Payment Service (IMPS);

d. Net Banking;

e. Unified Payment Interface (UPI);

f. Real Time Gross Settlement (RTGS);

g. National Electronic Funds Transfer (NEFT);

h. Bharat Interface for Money (BHIM) Aadhar Pay.

Penalty for failure to comply with provisions of section 269SS of Income Tax Act, 1961

According to provisions of section 271D of the Income Tax Act, if the person takes/ accepts any loan or deposit or specified sum in contravention of provisions of section 269SS. Then, such person shall be penalized with a sum equal to the amount of loan/ deposit/ specified sum so taken/ accepted (i.e. 100% of the amount of loan/ deposit/ specified sum).

Frequently Asked Questions (FAQs) on Section 269SS of Income Tax Act, 1961

Important Frequently Asked Questions relating to provisions of section 269SS of the Income Tax Act are highlighted hereunder –

1. What is section 269SS of the Income Tax Act?

Provisions of section 269SS of the Income Tax Act prescribes the mode of taking/ accepting certain loan, deposits and specified sum. Accordingly, any person can take/ accept INR 20,000 or more of loan/ deposits/ specified sum from any other person only via –

  • Account payee cheque;
  • Account payee bank draft;
  • Electronic clearing system via bank account; or
  • Specified electronic mode (like NEFT, RTGS, BHIM, etc.)

2. What is section 269SS and ST?

Section 269SS of the Income Tax Act deals with the mode of taking/ accepting loans, deposits and specified sum. Whereas, section 269T of the Income Tax Act deals with the mode of repayment of loans and deposits.

3. What is the limit under section 269SS?

Limit specified under section 269SS is INR 20,000. In nut shell, the person cannot take/ accept INR 20,000 or more in cash of loans, deposits and specified sum in cash from any person.

4. When was 269SS introduced?

Provisions of section 269SS of the Income Tax Act was introduced vide the Finance Act, 1984.

5. When was 269SS amended?

The mode of payment i.e. electronic clearing system through a bank account was inserted with effect from 1st April 2015.

6. What is difference between section 269SS and 269ST?

The difference between both the sections i.e. section 269SS and 269ST is that section 269SS deals with the mode of taking/ accepting loans, deposits and specified sum. However, section 269T deals with the mode of repayment of loans and deposits.

7. What is exception to section 269SS?

The Government; banking company; post office saving bank; any co-operative bank; any corporation; any Government company; any notified institution/ association or body or class of institution/ associations or bodies; etc. are the exception to section 269SS.

8. What is penalty for violation of 269SS?

A person violating provisions of section 269SS shall be liable to pay the penalty of 100% of loans, deposits and the specified sum so taken/ accepted.

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