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March 1, 2021

Restriction on taking and accepting loan, advance and deposit in cash under Income tax act

by CA Shivam Jaiswal in Income Tax

Restriction on taking and accepting loan, advance and deposit in cash under Income tax act

Section 269SS, 269ST and 269T deals with Restriction on taking and accepting loan, advance and deposit in cash. These sections were introduced in the Act with the objective that unaccounted cash found in the course of searches carried out by the Income-tax Department is often explained by taxpayers as representing loans taken from or deposits made by various persons. Unaccounted income is also brought into the books of account in the form of such loans and deposits and taxpayers were able to get confirmation letters from such persons in support of their explanation. In order to counter this issue, which enables taxpayers to explain away unaccounted cash or unaccounted deposits, section 269SS was introduced. This article will highlight all about the provision of section 269SS, 269ST and 269T.

Mode of taking/ accepting loans or deposit or advance: Section 269SS

As per section 269SS any person should take/ accept loan or deposit or advance in relation to immovable property only by account payee cheque, demand draft, online transfer through bank account or any other electronic mode as may be prescribed if the amount is Rs. 20,000 or more

On the date of taking or accepting such loan or deposit or advance in relation to immovable property, any loan or deposit or advance in relation to immovable property taken or accepted earlier by such by such person and unpaid on such date shall also be consider for Rs. 20,000 limits.

The above section is not applicable if loan/ advance/ deposit if loan/ advance/ deposit is taken from or by:

a. Government

b. Bank or Cooperative Bank or Post office

c. Government company

d. Person having only agriculture income

e. Corporation established by state, central provincial act

f. Any other as notified by CBDT

What are the consequences of violation of section 269SS?

If assessee fails to follow section 269SS than penalty shall be levied at 100% of such loan/ deposit/ advance. The penalty shall be imposed by the Joint Commissioner. However no penalty shall be levied if that person proves that there were good and sufficient reasons for the contravention

For instance: X accepted loan from Y as follow

On 26/07/2020 Rs. 12,000 by way of cash

On 10/12/2020 Rs. 15000 by way of bearer cheque

Thus, X has violated section 269SS as he has accepted loan of more than Rs. 27000 from Y. Also, penalty u/s 271D shall be attracted which will be Rs. 27000

Mode of undertaking transaction as per section 269ST

Any person should not receive an amount of Rs. 2,00,000 or more except by account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account or any other electronic mode as may be prescribed,

a. in aggregate from a person in a day, or

b. in respect of a single transaction, or

c. in respect of transactions relating to one event or occasion from a person

The CBDT had clarified that in respect of receipt in the nature of repayment of loan by Non-Banking Finance corporation or Housing Finance companies the receipt of one instalment of loan repayment in respect of a loan shall constitute a single transaction as specified clause (b) of section 269ST and all the instalments paid for a loan shall not be aggregated for the purposes of determining applicability of the provisions section 269ST.

The above section is not applicable in the below cases:

1. Any receipt by government, any banking company post office savings bank or cooperative bank

2. Transactions of the nature referred to in section 269SS

3. Such other persons or class of persons or receipts, notified by the central government

The Central Government has specified that the provision of section 269ST shall not apply to the following, namely:

a. Cash withdrawal by any person from a bank, cooperative bank or a post office savings bank.

b. Receipt by a business correspondent on behalf of a banking company or co operative bank, in accordance with the guidelines issued by the Reserve Bank of India.

c. Receipt by a white label automated teller machine operator from retail outlet sources on behalf of a banking company or cooperative bank

d. Receipt from an agent by an issuer of prepaid payment instruments

e. Receipt by a company or institution issuing credit cards against bils raised in respect of one or more credit cards

f. Receipt which is not includible in the total income under section 10(17A)

What are the consequences of violation of section 269ST?

If assessee fails to follow section 269ST than penalty shall be levied at 100% of receipt. The penalty shall be imposed by the Joint Commissioner. However no penalty shall be levied if that person proves that there were good and sufficient reasons for the contravention

For instance: X buys gold from Y worth Rs. 2 lakh and pays the amount by cash to Mr. Y on a single day in 4 equal instalments of Rs. 50,000 each. As Mr. Y accepted cash worth Rs. 2 lakh from a single person and in a single day, section 269ST is applicable in this case. Mr. Rahul has to pay a penalty of Rs. 2 lakh.

Repayment of Loan/ Deposit/ Advance as per 269T

Any person should repay:

a. Loan or deposit

b. Advance in relation to immovable property, only by account payee cheque, Demand draft, online transfer through bank account or any other electronic mode as may be prescribed, if the amount is Rs. 20,000 or more.

Note: On the date of repayment os such loan or deposit or advance in relation to immovable property, any loan or deposit or advance in relation to immovable property outstanding on such date shall also be consider for Rs. 20,000 limits

The above section is not applicable if loan/ advance/ deposit if loan/ advance/ deposit is taken or accepted from:

a. Government

b. Bank or Cooperative Bank or Post office

c. Government company

d. Person having only agriculture income

e. Corporation established by state, central provincial act

What are the consequences of violation of section 269ST?

If assessee fails to follow section 269T than penalty shall be levied at 100% of loan/ deposit/ advance repayment. The penalty shall be imposed by the Joint Commissioner. However no penalty shall be levied if that person proves that there were good and sufficient reasons for the contravention.

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