Section 269SS of the Income Tax Act is a provision that restricts individuals and businesses from accepting any loan or deposit from another person through certain payment modes. This section mandates that any loan or deposit above a specified limit must be conducted through prescribed methods, such as bank transfers, account payee cheques, or electronic payment systems. Cash transactions are specifically discouraged due to their potential for misuse, as they leave no formal record and can thus facilitate tax evasion or money laundering.
The primary aim of Section 269SS is to promote transparency in financial transactions and curb the flow of black money in the economy. Cash payments are commonly used in suspicious activities as they are difficult to trace, leaving no verifiable trail for tax authorities. By enforcing this section, the Indian government seeks to deter individuals from using cash for substantial financial dealings, thereby strengthening accountability in India’s financial system. In cases of non-compliance, severe penalties apply, which emphasises the government’s commitment to maintaining fiscal transparency and reducing the risk of unlawful activities. This regulation ultimately supports efforts to ensure that all transactions are properly documented and taxed.
If you are an Indian citizen and come under Indian taxation laws, it is vital that you know the provisions of section 269SS Income Tax Act as it applies to most individuals engaged in financial transactions. This blog will help you understand everything there is to know about section 269SS of the Income Tax Act to ensure effective taxation compliance.
What is section 269SS of the Income Tax Act?
The provisions of section 269SS of the Income Tax Act mandate that an individual cannot take or accept loans, deposits, or any sum from any other person if it is not in the payment modes specified under the section. The provisions of section 269SS apply to all loans, deposits, and sums of money if the amount is above Rs. 20,000. The modes of acceptance should not be cash and should be through methods such as account payee draft, account payee cheque, electronic clearing systems such as NEFT, RTGS, or any other electronic mode such as UPI.
Here are the key features of section 269SS of the Income Tax Act:
- If the deposit, loan, or specified sum is above Rs. 20,000, an individual must use the methods specified under section 269SS of the Income Tax Act.
- If a loan, deposit, or specified sum above Rs. 20,000 has been accepted earlier but remains to be paid, it should be accepted through modes of payments specified under section 269SS of the Income Tax Act.
Here, the specified sum means any type of money that is receivable either in advance or otherwise for any reason related to the transfer of immovable property, even if the transfer does not take place.
Here is a detailed table with practical examples of section 269SS of the Income Tax Act for the above provisions:
| Case | Transaction details | Covered under section 269SS | Reason |
| Ms. A received a cash gift of Rs. 25,000 from her relative | Gift of Rs. 25,000 in cash | Yes | The amount exceeds Rs. 20,000 and is received in cash |
| Ms. B received Rs. 12,000 in cash as a loan and Rs. 8,000 in cash as a deposit from her neighbour | Loan of Rs. 12,000 and deposit of Rs. 8,000 in cash | No | The total of cash transactions is Rs. 20,000, but neither amount individually exceeds Rs. 20,000 |
| Ms. C took a cash loan of Rs. 10,000 from Mr. X and Rs. 11,000 in cash from Mr. Y | Loan of Rs. 10,000 from Mr. X and Rs. 11,000 from Mr. Y | Yes | The total cash received exceeds Rs. 20,000 when considering individual transactions from each person |
| Ms. D received Rs. 8,000 from Mr. Z in January 2023 and Rs. 14,000 from Mr. Z on July 2023 | Two cash transactions of Rs. 8,000 and Rs. 14,000 from Mr. Z | Yes | The total outstanding balance from Mr. Z (Rs. 22,000) exceeds Rs. 20,000 after the second transaction |
Provisions of section 269SS of the Income Tax Act 1961
Section 269SS of the Income Tax Act prohibits any person from accepting loans or deposits of Rs. 20,000 or more in cash. In case any such loan or deposit is to be accepted, it must be accepted in the payment modes specified under section 269SS of the Income Tax Act. Here are the key provisions of section 269SS of the Income Tax Act:
- Mode of acceptance: Any individual accepting a loan or deposit of Rs. 20,000 or more must accept it through an account payee cheque, an account payee bank draft, electronic clearing system, or any other electronic mode through a bank account.
- Applicability: The provisions of section 269SS Income Tax Act apply to individuals, companies, and other entities, except for government bodies, banking companies, post office savings banks, and cooperative banks.
- Penalties: If an individual or an eligible entity fails to receive or accept a loan or deposit of Rs. 20,000 or more through the specified modes, the provisions of section 269SS levies a penalty equal to the amount of the loan or deposit accepted.
Here are the modes of payments specified under section 269SS of the Income Tax Act:
- Account payee bank draft
- Account payee cheque
- Electronic Clearing System (ECS) through a registered bank account
- Debit card
- Credit card
- Immediate Payment Service (IMPS)
- Unified Payment Interface (UPI)
- Real Time Gross Settlement (RTGS)
- National Electronic Funds Transfer (NEFT)
- Bharat Interface for Money (BHIM)
- Aadhar Pay
The main aim of introducing these provisions under section 269SS was to curb the circulation of unaccounted money and promote transparency in financial transactions. Now, as any money received as a loan or deposit equal to and above Rs. 20,000 is accepted through modes that leave a financial trace, it helps the government to monitor the transactions and ensure that relevant tax is paid on the amount.
Exemptions under section 269SS of the Income Tax Act
Here are the exceptions to section 269SS of the Income Tax Act:
- Exempted entities: The following entities are exempted from the provisions of section 269SS of the Income Tax Act and can take or accept a loan or deposit of any kind and any amount in any mode, even in cash:
- The Indian government
- Any banking company, including post office savings banks or co-operative banks
- Any government company, as per the definition listed in the section 2(45) of the Companies Act, 2013
- Any corporation created by a central, provincial, or state act
- Any institution, class of associations, body, or association notified in the official gazette by the central government.
- A person only earning agricultural income and taking a loan or deposit from another person who also only earns agricultural income.
- A loan or cash receipt from relatives at the time of emergency without the intention of tax evasion.
- Some judicial precedents may allow some situations to be exempted under the provisions of section 269SS of the Income Tax Act:
- A husband taking a loan from his wife or vice versa, as per Nabil Javed Vs. ITO (ITAT Delhi).
- Cash transactions between family members with the intention of offering financial support and not tax evasion, as per Sri Nikhil Banik Mazumder Vs. JCIT (ITAT Kolkata).
- Cash transactions carried out between relatives as per Snehalata Sitani vs JCIT (ITAT Kolkata).
Penalty for section 269SS of the Income Tax Act
Individuals and eligible entities failing to accept loans or deposits of Rs. 20,000 or more in modes of payments specified under section 269SS of the Income Tax Act are charged with a penalty. This penalty under section 269SS is specified in section 271D. In case of non-compliance, the section imposes a penalty equal to the amount of the transaction. This means that if a transaction is not conducted through an account payee cheque/draft or electronic transfer, the penalty for the violation can be the same as the amount of the loan or deposit.
Reasonable causes where no penalty is imposed for violation of 269SS
There are certain reasonable causes under which no penalty is imposed for violating Section 269SS of the Income Tax Act. Penalty waivers typically apply when the taxpayer can justify that the transaction was conducted under circumstances beyond their control or due to genuine hardship. For instance, if the loan or deposit was taken urgently to address a medical emergency or to cover sudden financial obligations, the authorities may consider these valid grounds for exemption from penalty.
Other reasonable causes may include technical difficulties, such as banking issues that prevent electronic transfers or cases where the parties involved are close family members with long-standing financial trust. Additionally, if the transaction was done in good faith with transparency and no intention of tax evasion, the taxpayer may avoid penalties. In such cases, the Income Tax Department assesses the circumstances before deciding to waive the penalty, ensuring a fair approach based on individual situations.
Reporting of transactions under sections 269SS
Reporting transactions under Section 269SS is essential for compliance with the Income Tax Act. When any loan or deposit exceeding the specified limit is received in cash or through any non-permissible mode, the transaction must be documented and reported by the taxpayer. Accountants and auditors play a critical role in identifying and disclosing these transactions in the taxpayer’s annual financial records to avoid scrutiny. Non-compliance can lead to inquiries from tax authorities and penalties under Section 271D. Proper reporting ensures transparency, allowing authorities to monitor significant cash transactions, deter black money, and enforce financial accountability across taxpayers.
Things to keep in mind to prevent infringement of section 269SS
- Avoid cash transactions for loans or deposits above the specified limit. Instead, use permissible modes like bank transfers, account payee cheques, or electronic payment systems.
- Always maintain accurate records of financial transactions, especially loans or deposits, to ensure compliance with the reporting requirements of Section 269SS.
- Consult a financial advisor or tax expert when taking or accepting substantial funds to ensure transactions meet legal standards, avoiding inadvertent breaches.
- Plan transactions in advance to prevent situations where you might need to rely on cash due to urgency. Such planning helps maintain compliance and reduces the risk of penalties.
- Be aware of reasonable causes for exemption, such as medical emergencies, and ensure these situations are well-documented if they arise. In cases where exemptions apply, having detailed records can support claims for penalty waivers if required by the Income Tax Department.
Conclusion
India has heavily transitioned from a cash economy to a digital-first economy due to the Indian government’s push to make almost all financial transactions digital. In this aim of the Indian government, section 269SS of the Income Tax Act assists significantly. It mandates that every individual and eligible entity must accept a loan or deposit of Rs. 20,000 or more in modes of payment specified under the section. It ensures that a loan or deposit of Rs. 20,000 or more is not accepted in cash but in modes such as account payee cheques, bank drafts, or electronic transfers. The provisions of section 269SS Income Tax Act support the government’s aim of curbing black money and illicit activities by making financial transactions such as loans and deposits accountable.
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