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 and 269T deal with the cash payment and repayment of loans and deposits. Both the sections were introduced to curb the black money.
1. The Object of introducing 269SS & 269T
Income Tax Authorities uncover hidden and unaccounted cash during raids. Previously, the culprit would escape by saying that he received the cash as loan or deposit from friends or relatives.
Also, the persons with an aim of tax evasion would do false transactions showing payment and repayment of loans and deposits in cash.
To curb the increasing cash transactions which are leading to accumulation of black money, 269SS and 269T were introduced which restricts these cash payments.
2. What is Section 269SS?
A person cannot accept loan or deposit or any other specified sum (specified sum here in advance or otherwise, in relation to the transfer of 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, if –
1. Amount of loan or deposit or specified sum is Rs. 20,000 or more, or
2. 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.
3. 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 depositor-specified sum hasn’t been paid back. In such case, if the unpaid loan or depositor-specified sum is Rs. 20,000 or more, or
4. Sum total amount of (1), (2) and (3) is Rs. 20,000 or more.
In nutshell, a person cannot accept cash loan or deposit of Rs. 20,000 or more from another person.
3. Exceptions to 269SS
- Any loan or deposit or specified sum “taken or accepted from” or “taken or accepted by” the following entities –
a. The 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 clause (45) of section 2 of the Companies Act, 2013 (18 of 2013)
e. 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.
- A person earning only agriculture income accepts loan or deposit from another person also earning only agriculture income
- Receiving cash from relative during emergencies. Here intention should not be to evade the taxes, rather helping in an emergency.
- Partners contributing cash capital into partnership firm
4. Penalty on contravention of Section 269SS
100% of the loan or deposit amount
5. 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 –
a. Amount of loan or deposit, including interest amount, is Rs. 20,000 or more, or
b. 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.
6. Exceptions to Section 269T
A person paying Rs. 20,000 or more towards repayment of loan or deposit do not have to comply with 269T if he pays to the following parties –
a. The 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,
e. Other notified institutions
7. Penalty on contravention of Section 269T
100% of the loan or deposit amount
8. Reporting of 269SS & 269T Transactions
In clause 31 of Form 3CD, the auditor has to report the 269SS and 269T transactions. Both the parties (payer and receiver) have to report the transactions. You can read the Clause 31 in detail, here.