Analysis of Section 269SS and Section 269T of Income Tax Act - Repayment of Loans

Sections 269SS and 269T of the Income Tax Act 1961, prohibit cash transactions of Rs. 20,000 or more mainly for loans and deposits. If these rules are violated, a penalty equal to 100% of the loan or deposit amount can be imposed.

What is Section 269SS?

• Section 269SS prohibits any person from accepting loans or deposits or any other specified sum of Rs. 20,000 or more in cash. 
• It is to be noted that the threshold limit applies for amount paid to one person, in a day, with respect to a single transaction.
• Such loans or deposits have to be accepted only through specified payment channels as per Section 269SS of the Income Tax Act 1961.
• Specified sum here refers to an advance or otherwise, in relation to the transfer of any immovable property.

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

Specified Modes of Transaction

As per the income tax rules, the specified modes of accepting loans or deposits or specified sums are:

• Account payee cheque/bank draft,
• Electronic Clearing System (ECS) through a bank account; or
• Net Banking;
• Credit Card;
• Debit Card;
• RTGS;
• NEFT;
• BHIM,
• IMPS; and
• UPI.

Exceptions to 269SS

1. Any loan or deposit or specified sum “taken or accepted from” or “taken or accepted by” the following entities –
   1. The government
   2. Any banking company, post office savings bank or cooperative bank
   3. Any corporation established by a Central, State or Provincial Act
   4. Any government company as defined in clause (45) of section 2 of the Companies Act, 2013 (18 of 2013)
   5. Any institution, association or body or class of institutions, associations or bodies notified in Official Gazette.
2. A person earning only agricultural income accepts a loan or deposit from another person also earning only agricultural income and neither of them has any Income chargeable to tax under the Act.
3. Other exceptional cases:
   1. Receiving cash from relatives during emergencies. Here intention should not be to evade the taxes.
   2. Partners contributing cash capital into a partnership firm.
   3. Where there is mere book entry and no receipt of money in cash or any other form.

Section 269SS Examples

1. Mr P accepted a loan from ABC on 1st April 2021 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), which is more than Rs 20,000, the provisions of Sec 269SS are violated.

2. Mrs J accepts a loan of Rs 12,000 in cash from Mr K and 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.

3. On 12 December 2021, Mr F took a cash loan of Rs 10,000 from Mr G and accepted a further loan of Rs 9,000 from Mr G by account payee cheque.

Since the new loan is taken in 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 shall be levied by the assessing officer. 
• A person accepting the loans and deposits in cash above the prescribed limit is liable to pay such a penalty. 
• However, if the person can prove that there was a reasonable cause for such transactions and no malafide intentions, he/she may not be penalised.
• Hence, the receiver of the money is required to ensure that the provisions of Section 269SS are complied with while accepting payments.

What is Section 269T?

Section 269T prohibits any person from repaying the loan or deposit or specified sum otherwise than by an account payee cheque or account payee bank draft or by use of an 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 name or jointly with any person is Rs. 20,000 or more.

In a nutshell, as per Section 269T of the Income Tax Act, 1961 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 a 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 cooperative 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. 

You can read clause 31 in detail here.

Illustration Through Case Law

The balance due to 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:-

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

Accounting Ledger Entries For FY 2021-22

 Loan From Shivani A/c

Analysis of The Case

• The Rs 4,000 cash loan taken 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. 
• 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.
• On 6th May, Shivani took a cash loan of Rs 19,000. Since no previous balance is due, such a loan can be accepted in cash, as the total balance is less than Rs 20,000.
• 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. 
• There was no previous balance due on 10 June, and hence, the Rs 12,000 cash loan taken on that day is correct. It will not attract any penalty because the total amount is less than Rs 20,000.
• On 20th June, the balance due in the loan account was Rs 12,000, and Rajkumar took Rs 2,000 from the same person. This will not attract Section 269SS as the balance in the loan account is Rs 14,000.
• On 22nd June, Rajkumar took a cash loan of Rs 10,000 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.
• On 1 July, Rajkumar repays the Rs 24,000 loan outstanding to Shivani through cheque. Hence, this will not contravene Section 269T of the Income Tax Act.

Differences Among Section 269SS, 269T And 269ST

Conclusion

Tax evasion and the surfacing of black money have become challenging tasks for the government of India. The rise of black money, tax evasion and false cash transactions led to the introduction of Section 269SS and 269T of the Income Tax Act. It is mandatory for both parties, sender and receiver, to demonstrate all the transactions that come under Section 269SS and 269T during their income tax e-filing.