Introduction
The Income Tax Act, 1961 has several provisions to promote transparency in financial dealings and to prevent circulation of unaccounted money. One such important provision is Section 269SS, which imposes restrictions on acceptance of cash loans, deposits, or advances of ₹20,000 or more.
Failure to comply with this provision may lead to a 100% penalty under Section 271D. This makes it essential for taxpayers to understand the rules, applicability, exemptions, and consequences.
What is Section 269SS of Income Tax Act?
Section 269SS prohibits any person from accepting a loan, deposit, or advance of ₹20,000 or more in cash. Such transactions must be carried out only through:
- Account payee cheque
- Account payee bank draft
- Electronic modes (NEFT, RTGS, UPI, IMPS, Net Banking, etc.)
Example:
- If an individual borrows ₹25,000 in cash from a friend, it violates Section 269SS.
- If the same amount is received via bank transfer, there is no violation.
Applicability of Section 269SS
The restriction applies to all taxpayers, including:
- Individuals
- Hindu Undivided Families (HUFs)
- Firms / LLPs
- Companies
- Trusts, Societies and other entities
Note: The ₹20,000 limit is not per transaction. If the aggregate amount with a single person exceeds ₹20,000, then cash acceptance is prohibited.
Exemptions to Section 269SS
The following transactions are exempted from the restrictions under Section 269SS:
1.Transactions with:
- Government
- Banking companies
- Post office savings bank
- Cooperative banks
- Institutions notified by the Central Government
2. Agricultural income cases: If both the lender and borrower have only agricultural income.
3. Other notified cases: Transactions covered under specific exemptions issued by the Government.
Penalty for Violation – Section 271D
If a taxpayer accepts a cash loan, deposit, or advance in violation of Section 269SS, a penalty equal to the amount of the loan/deposit/advance will be levied under Section 271D.
Example:
- Cash accepted: ₹25,000
- Penalty u/s 271D: ₹25,000 (100% of the transaction amount)
This makes it a high-risk compliance area for businesses and individuals alike.
FAQs on Section 269SS:
1. What is the cash limit for loan under Income Tax Act?
The cash limit is ₹20,000. Any loan, deposit, or advance above this amount must be taken only through banking channels.
2. Can I accept ₹25,000 in cash from a relative for an emergency?
No. Even friendly or emergency loans are covered under Section 269SS. Violation attracts penalty.
3. What is the penalty for violating Section 269SS?
Penalty under Section 271D is 100% of the cash loan/deposit/advance accepted.
4. Does Section 269SS apply to businesses only?
No. It applies to all persons including individuals, HUFs, firms, companies, and trusts.
5. Is repayment of loan in cash also prohibited under Section 269SS?
No. Repayment in cash is covered under Section 269T, not Section 269SS.
Conclusion
Section 269SS is a crucial compliance requirement under the Income Tax Act, 1961. It clearly restricts taxpayers from accepting ₹20,000 or more in cash as a loan, deposit, or advance. Non-compliance attracts a 100% penalty under Section 271D, which can be financially burdensome.
To stay compliant and avoid penalties, always use account payee cheque, bank draft, or electronic transfer for such transactions.
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What if the payment is made to a third party on behelf of the lender , by account payee cheque with necessary documents .