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What is Section 269SS of the Income Tax Act & Section 269T of the Income Tax Act?
Most try to find ways to avoid paying taxes. However, if it is done using unfair means or by concealing information/income from tax authorities, such avoidance is termed tax evasion, which is a serious criminal offense. If caught, the person may have to face an enormous penalty as well as imprisonment. To avoid these consequences, people found ways to explain the transactions. One such common explanation was offered in the case of unaccounted cash. If, during raids, the tax authorities discovered unaccounted cash, the person would escape the consequences by explaining the source of such cash to be a loan or deposit from friends and family, as there was no limit on the amount of such loan/deposit in the Income Tax Act, 1961('the Act'). To bring such transactions within the scope of the Act and curb the movement of black money, sections 269SS and 269T were introduced.
This article helps break down and explain these sections in detail.
A person can take or accept a loan or deposit or any specified sum(*) from any other person (hereinafter referred to as 'depositor') only through the specified modes of payment if the amount exceeds certain limits.
*Specified sum: means any amount of money receivable such as advance, etc., regarding the transfer of immovable property, irrespective of whether such transfer takes place or not.
Limits of Section 269SS
a. Amount of loan, deposit or specified sum or aggregate amount of such loan, deposit or specified sum is INR 20,000 or more
E.g., Mr A takes a loan of INR 10,000, a deposit of INR 5,000 and a specified sum of INR 6,000. Will the limits apply separately? No, since the aggregate amount of all three, i.e. INR 21,000, which exceeds INR 20,000, Mr A is required to accept the amount through specified modes of payment only.
b. Suppose on the date of accepting such a deposit or taking such a loan or specified sum, any deposit or loan or specified sum taken or accepted earlier by such person from the depositor remains unpaid. In that case, the amount outstanding or the aggregate of all amounts is INR 20,000 or more.
E.g., Mr A has earlier taken a loan of INR 18,000 from ABC& Co. and wants to take another loan of INR 2,000 from ABC&Co. As of this date, the loan of INR 18,000 is unpaid. Since the total of the initial loan amount of INR 18,000 and the fresh loan of INR 2,000 is INR 20,000. Therefore, such a loan must be taken in accordance with section 269SS through specified modes of payment only.
Therefore, in short, a person cannot take a loan or accept a deposit or any specified sum from another person amounting to INR 20,000 or more in cash.
The specified modes of payment given in the section read with rule 6ABBA are:
- Account payee bank draft or
- Account payee cheque or
- Use of an electronic clearing system (‘ECS’) through a bank account
- Credit Card;
- Debit Card;
- Net Banking;
- IMPS (Immediate Payment Service);
- UPI (Unified Payment Interface);
- RTGS (Real Time Gross Settlement);
- NEFT (National Electronic Funds Transfer); and
- BHIM (Bharat Interface for Money) Aadhar Pay;
Exceptions to section 269SS
a. Section 269SS does not apply to:
- any deposit or loan or specified sum accepted or taken by, or
- any deposit or loan or specified sum accepted or taken from the specified entities, i.e. such entities may take, accept or give such said amounts, without any limits, through any mode of payment, including cash from/to any person. Such specified entities are as follows:
- i. The Government
- ii. Any banking company, co-operative bank or post office savings bank
- iii. Any Government company as defined in section 2(45) of the Companies Act, 2013
- iv. Any corporation established by a State, Central or Provincial Act
- v. Any association, institution or body or class of associations, institutions or bodies notified in the Official Gazette by the Central Government.
b. A person who earns only agricultural income takes a loan, deposit, or specified sum from any other person who earns only agricultural income.
c. Contribution of capital by partners into the partnership firm in the form of cash
d. Receipt of cash from relatives during emergencies where the intention of the person is not tax evasion.
e. Certain judicial precedents which have held that section 269SS shall not apply to the under-mentioned cases:
- i. Loan transactions between husband and wife [Nabil Javed Vs ITO (ITAT Delhi)]
- ii. Cash transactions between close family members for offering help and support [Sri Nikhil Banik Mazumder Vs. JCIT (ITAT Kolkata)]
- iii. Transaction between relatives [Snehalata Sitani Vs JCIT (ITAT Kolkata)]
This section prohibits a person from repaying the loan or deposit or any specified sum in cash if:
- The repayable amount of loan or deposit or such specified sum (including interest on such amounts) is INR 20,000 or more
- The aggregate amount of loan or deposit or such specified sum (including interest on such amounts) taken by him either in his own name or jointly with another person from a bank, co-operative bank or any other person where such amount is INR 20,000 or more.
In brevity, this section provides that no person can repay the loan, deposit or any specified sum in cash if the amount is INR 20,000 or more in cash. The payment is required to be made through the same modes specified earlier.
Exceptions to section 269T
Certain entities may take, accept, or give such said amounts through any mode of payment, including cash from/to any person. i.e., section 269T does not apply to them. Such specified entities are as follows:
- The Government
- Any banking company, cooperative bank or post office savings bank
- Any corporation established by a State, Central, or Provincial Act
- Any Government company as defined in section 2(45) of the Companies Act, 2013
- Any association, institution, or body or class of associations, institutions, or bodies notified in the Official Gazette by the Central Government.
Penalty for violation of section 269SS and 269T
As per sections 271D and 271E, the exact amount of loan or deposit (i.e., 100%) taken or accepted shall be the amount of penalty for contravention of sections 269SS and 269T, respectively.
Cases where no penalty shall be levied for violation of 269SS and 269T
According to section 273B, no penalty shall be imposed under sections 271D & 271E where any person violates sections 269SS and 269T due to any reasonable cause. Certain judicial judgments have held that no penalty shall be levied in the following cases:
- Receipt or repayment of partner’s capital: If any money is exchanged in the form of loan, deposit, etc. (through capital/current account) between partners and the partnership firm amounting to INR 20,000 or more, then it shall not be covered within the ambit of 269SS and 269T. Therefore, no penalty can be levied on such transactions [CIT New Delhi vs Muthoot Financiers (2015) 55 taxmann.com 202 (Delhi-High Court)
- A genuine transaction made at a time of emergency does not attract a penalty [Narsingh Ram Ashok Kumar vs Union Of India (Uoi) And Ors. (Patna High Court)]
- Transactions of acceptance or repayment of any amount covered under section 269SS and 269T merely through book entries won’t attract a charge of penalty.
- Cash loan taken from the unorganised finance sector to repay lenders [M/s. P.R. Associates Vs ACIT (ITAT Pune)]
- Any transaction involving cash payment and repayment of the same due to business exigency [CIT Vs Shri.T.Perumal (Madras High Court)]
- Cash loan from father-in-law [Shri Sanmathi Ambanna Vs JCIT (ITAT Bangalore)]
- Advance received from promoters through current A/cs in case [M/s. Space N Place Promoters P. Ltd. Vs. JCIT (ITAT Chennai)]
- Current account transactions between sister concerns [CIT V. Idhayam Publications Ltd., (2006) 285 ITR 221 (Mad)]
Reporting of transactions under sections 269SS and 269T
Clause 31 of Form 3CD (tax audit report) requires reporting of the transactions specified under sections 269SS and 269T if such transactions exceed the specified limit thereunder. The tax auditor must report the following particulars under the below-mentioned sub-clauses:
- Sub-clause (a): Particulars such as name, address, PAN, amount of loan or deposit, the amount outstanding, etc., in respect of each loan or deposit taken or accepted during the financial year where the amount exceeds the limit specified in section 269SS.
- Sub-clause (b): Particulars such as name, address, and PAN (if available) in respect of each specified sum where the amount exceeds the limit specified in section 269SS.
- Sub-clause (c): Particulars of each repayment of each loan or deposit or specified sum made during the financial year in excess of the limits specified under section 269T.
- Sub-clause (d): Particulars of each repayment of each loan or deposit or specified sum received during the financial year in excess of the limits specified under section 269T through any modes other than the specified modes of payment.
- Sub-clause (e): Particulars of each repayment of each loan or deposit or specified sum received during the financial year in excess of the limits specified under section 269T through the specified modes of payment.
Frequently Asked Questions
Q- What is Section 269SS of the Income Tax Act?
Section 269SS is a provision under the Income Tax Act, 1961, that regulates the acceptance of certain loans and deposits by individuals, Hindu Undivided Families (HUFs), and other entities.
Q- What transactions are covered under Section 269SS?
Section 269SS applies to transactions where an individual, HUF, or any person accepts a loan or deposit in cash. It also covers any transactions involving an amount exceeding Rs. 20,000.
Q- Is it permissible to accept loans or deposits in cash under Section 269SS?
No, it is not permissible to accept loans or deposits in cash if the amount exceeds Rs. 20,000. Any such transaction should be done through banking channels or by other permissible modes.
Q- What are the consequences of violating Section 269SS?
If a transaction that violates Section 269SS is discovered, it may result in penalties under Section 271D, which is usually a penalty equal to the amount accepted in cash.
Q- What is Section 269T of the Income Tax Act?
Section 269T is another provision under the Income Tax Act, 1961, which regulates the repayment of certain loans and deposits by individuals, HUFs, and other entities.
Q- What transactions are covered under Section 269T?
Section 269T applies to transactions where an individual, HUF, or any person makes repayments of loans or deposits in cash. It also covers transactions where the repayment amount exceeds Rs. 20,000.
Q- Is it permissible to make repayments in cash under Section 269T?
No, it is not permissible to make repayments of loans or deposits in cash if the amount exceeds Rs. 20,000. Repayments should be made through banking channels or by other permissible modes.
Q- What are the consequences of violating Section 269T?
Violating Section 269T can result in penalties under Section 271E. The penalty is typically equal to the amount of the loan or deposit repaid in cash.
Q- Are there any exceptions to Sections 269SS and 269T?
Yes, there are certain exceptions and specific situations where these sections do not apply, such as transactions with government institutions, banks, or specific cooperative credit societies, or transactions where the nature and circumstances justify the use of cash.
Q- How do these sections affect business and financial transactions?
Sections 269SS and 269T are designed to promote transparency and discourage the use of unaccounted cash in financial transactions. They are important for maintaining the integrity of financial dealings and ensuring proper documentation.