Sections 269SS & 269T of Income Tax

Sections 269SS and 269T have been discussed in this article and this deals with cash payment and repayment of loans and deposits. Both the sections were introduced to curb the black money. Tax evasion is one of the serious problems in India causing economic disparities. False cash transactions give birth to unaccounted money which in turn increases tax evasion.

Section 269SS

A person cannot accept loan or deposit or any other specified sum (specified sum here refers to an advance or otherwise, in relation to the transfer of any immovable property) from another person otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account or other specified manner, if –

• Amount of loan or deposit or specified sum is Rs. 20,000 or more, or
  • For example, Rahul wants to take a loan of Rs 50,000 from Vineet, he cannot accept it in cash because it will violate Section 269SS as the amount is more than Rs 20,000.
• Sum total amount of loan, deposit, and the specified sum is Rs. 20,000 or more.
  • For example – Rahul wants to take a loan of Rs. 6,000, a deposit of Rs. 9,000 and advance of Rs. 7,000 from Vineet, he cannot accept it in cash because the total sum is 22,000.
• In a case where a person had already received a loan, deposit or specified sum from the depositor (person giving the loan, deposit or specified sum) but the loan or deposit or specified sum hasn’t been paid back in such case, if the unpaid loan or deposit or-specified sum is Rs. 20,000 or more.
  • For example, Rahul had accepted a loan from Vineet on 1st June 2020 by crossed cheque for Rs 19,000. On 15th April 2021 Rahul wants to take another loan from Vineet for Rs 2000 (the earlier loan remaining unpaid on the date). Then, since the total loan outstanding is Rs 21,000 (20,000 + 2,000) is more than Rs 20,000, the provisions of Sec 269SS will be attracted. Hence, Rahul cannot accept the the new loan on 15th April 2021 by cash mode.

Therefore, in nutshell, a person cannot accept cash loan or deposit of Rs 20,000 or more from another person in a single day.

Specified Modes of Transaction

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

1. Account payee cheque/bank draft,
2. Electronic Clearing System (ECS) through a bank account; or
3. Net Banking;
4. Credit Card;
5. Debit Card;
6. RTGS;
7. NEFT;
8. BHIM,
9. IMPS; and
10. UPI.

Exceptions to 269SS

1. Any loan or deposit or specified sum “taken or accepted from” or “taken or accepted by” the following entities –

• The Government
• Any banking company, post office savings bank or co-operative bank
• Any corporation established by a Central, State or Provincial Act
• Any Government company as defined in clause (45) of section 2 of the Companies Act, 2013 (18 of 2013)
• Any institution, association or body or class of institutions, associations or bodies notified in Official Gazette.

Thus, if any person accepts any loan or deposit or specified sum from the above-mentioned entities, or the entities accept any loan or deposit or specified sum from any person, provisions of 269SS will not apply.

2. A person earning only agriculture income accepts loan or deposit from  another person also earning only agriculture income.

The persons may have other income (in addition to agricultural income) chargeable to tax under the Income Tax Act, however, there should not be any income tax liability after allowing exemptions and deductions.

3. Other exceptional cases:

• Receiving cash from relative during emergencies. Here intention should not be to evade the taxes.
• Partners contributing cash capital into partnership firm.
• Where there is mere book entry, and no receipt of money in cash or any other form.

Section 269SS Illustrations

Mr P had accepted a loan from ABC on 1st April 21 by account payee cheque for Rs 10,000. He had repaid 3,000 in cash on 3rd Aug 2021. On 25th September 2021 Mr P takes another loan from ABC 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.

Mrs J accepts a loan of Rs 12,000 in cash from Mr K and she also accepts a deposit of Rs 15,000 in cash from Mr Z on the same day.

Section 269SS is not violated as the amount is not more than Rs 20,000 from one person.

Mr F takes a loan of Rs 10,000 in cash from Mr G on 12th December 2021 and accepts a further loan of Rs 9,000 from Mr G by an account payee cheque.

Since the new loan is taken by a prescribed mode, there is no violation of the provisions of Sec 269SS.

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.

However, if the person is able to prove that there is a reasonable cause for such transactions, and there were no malafide intentions, he/she may not be penalised.

Section 269T

Section 269T prohibits any person to repay the loan or deposit or specified sum otherwise than by an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account, if –

• Amount of loan or deposit, including interest amount, is Rs. 20,000 or more, or
• The aggregate amount of loans or deposits, including the interest amount, held by such person in his own name, or jointly with any person, is Rs. 20,000 or more.

In nutshell, a person cannot repay the loan or deposit in cash, if the amount is Rs. 20,000 or more.

Exceptions to Section 269T

A person paying Rs. 20,000 or more towards repayment of loan or deposit does not have to comply with 269T if he pays to the following parties –

• The government,
• Any banking company, post office savings bank or co-operative bank,
• Any corporation established by a Central, State or Provincial Act,
• Any Government company as defined in section 617 of the Companies Act, 1956,
• Other notified institutions

Penalty on contravention of Section 269T

100% of the loan or deposit amount will be the penalty leviable by the assessing officer.

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.

Illustration through Case Law

The balance due from Shivani on 1st April 2021 is Rs 17,000 as per the account books of Rajkumar for the FY 2020-21. In FY 2021-22, the following transactions took place between Rajkumar and Shivani during the year:-

1. On 14th April 2021, Rajkumar took a further loan of Rs 4,000 in cash from Shivani.
2. On 30th April 2021, Rajkumar repays the loan by a cheque of Rs 21,000.
3. On 6th May 2021, he again took a loan of Rs 19,000 in cash.
4. On 15th May 2021,- the loan of Rs 19,000 is repaid in cash.
5. On 10th June 2021, Rajkumar again takes a loan of Rs 12,000 in cash..
6. On 20th June 2021, he again takes a loan of Rs 2,000 in cash.
7. On 22nd June 2021, a further loan of Rs 10,000 was taken in cash
8. On 1st July 2021, he repays Rs 24,000 by cheque.

Accounting entries for FY 2021-22
Loan from Shivani A/c

Analysis of the case

1. The loan of Rs 4,000 taken in cash on 14th April contravenes the provisions of Section 269SS. The balance due in the loan account of Rs 17,000 combined with the further loan of Rs 4,000 from the same person exceeds the threshold limit of Rs 20,000.
2. The loan of Rs 21,000 was repaid on 14th April by giving a cheque to Shivani, which is correct and in compliance with Section 269T. It will not attract any penalty.
3. On 6th May, the loan of Rs 19,000 was taken in cash from Shivani. Since no previous balance is due, such a loan can be accepted in cash as the total balance is less than Rs 20,000.
4. Repayment of the Rs 19,000 loan in cash to the same person does not contravene the provisions of Section 269T as the payment amount is less than Rs 20,000.
5. There is no previous balance due on 10th June, and hence, the loan of Rs 12,000 taken on that day in cash is correct. It will not attract any penalty because the total amount is less than Rs 20,000.
6. On 20th June, the balance due in the loan account is Rs 12,000, and Rajkumar further takes Rs 2,000 from the same person. It will not attract Section 269SS as the balance in the loan account is Rs 14,000.
7. On 22nd June, Rajkumar further took a loan of Rs 10,000 in cash from Shivani. The total balance on 22nd June is Rs 24,000, which exceeds the threshold limit of Rs 20,000. Hence, it will contravene the provision of Section 269SS.
8. On 1st July, Rajkumar repays the loan of Rs 24,000 outstanding to Shivani through cheque. Hence, it will not contravene Section 269T of the Income Tax Act.

Frequently Asked Questions

Can I repay loan amounting to more than Rs.20,000 in cash?

No, this will be contravention of section 269T i.e. a person cannot repay loan amounting to more than Rs.20,000 in cash.

Can I accept cash loan or deposit amount of Rs.20,000 or more from the government or banking institution?

Yes, you can accept cash loan or deposit amount of Rs. 20,000 or more from the government or banking institution because it falls under exceptions of Section 269SS.

Whether Section 269SS will attract if I take loan from my friend for personal purpose?

Yes, Section 269SS is applicable to every person taking loan above Rs 20,000 even if it is for personal purpose.

I had repaid the loan of Rs 60,000 in cash for the loan taken by my father after his death. Will it attract Section 269T?

Yes, Section 269T is applicable to every person if the amount of repayment of loan or deposit exceeds Rs 20,000.

Where I have to mention about Section 269SS and 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.