Section 269T of Income Tax Act: Loan Repayment Cash Limit & Penalty

Section 269T of the Income Tax Act prohibits repayments of loans, deposits, or specified sums of Rs. 20,00 or more in cash. Such repayments must be made in the prescribed banking modes. Section 269T applies if:

• The amount of loan or deposit, including interest, is Rs. 20,000 or more, or
• The aggregate of loans or deposits held in the name of the person is Rs. 20,000 or more

In other words, a loan or deposit of Rs. 20,000 or more cannot be repaid in cash. 

Specified Modes of Transaction Under Section 269T

The following modes are specified for repayment of loans or deposits as per Section 269T:

1. Account payee cheque or 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

What are the Exceptions to 269T?

Section 269T is not applicable when repayment is done to:

• The Government
• Any banking company
• Post office savings bank
• Co-operative bank
• Any corporation established by a Central, State, or Provincial Act
• Any Government company (as defined under the Companies Act, 2013)
• Any other institution, association, or body notified in the Official Gazette

Therefore, repayment of a loan in cash above Rs. 20,000 is allowed if it is made to notified Government or banking entities.

Examples

1. Mr A decides to repay a loan with a principal amount of Rs. 15,000 and interest of Rs. 7,000 in cash. 

Since the total amount being repaid is Rs. 22,000 (principal and interest), this violates the provisions of Section 269T. 

2. MZT Pvt. Ltd. repays the deposit of Rs. 27,000 to Mr R in cash.

Since Section 269T disallows repayment of deposits of Rs. 20,000 or more in cash, MZT Pvt. Ltd. cannot repay Mr R, Rs. 27,000 in cash. 

Penalty for Violating Section 269T

• 100% of the loan or deposit amount will be the penalty levied for violating provisions of Section 269T.

Reporting Requirement

• The tax auditor is required to report transactions relating to Section 269T in Clause 31 of Form 3D. 

Also Read:
1. Section 269SS of Income Tax Act: Rules, Exceptions, Penalty