Section 269SS Of Income Tax Act: Penalty & Exemptions Under Sec 269SS
Mr Sharma is amid an unexpected financial instability. He has to look after his business expenses as well as his child’s higher education. To curb this financial crunch, he resorts to a loan from an acquaintance willing to provide him with cash.
But, before he proceeds, is there something he must know about accepting certain deposits or loans? Yes, before applying for a loan or taking deposits, every individual must be well-versed with the restrictions that Section 269SS of Income Tax Act imposes.
What Does Section 269SS of the Income Tax Act State?
As per Section 269SS of the income tax act, no one can accept a loan or deposit from any person that is not in the form of an account payee cheque, bank draft or ECS (Electronic Clearing System). This is applicable if:
- The loan or deposit amount is more than Rs. 20,000.
- The total amount of deposit, specified sum and loan is Rs. 20,000 or more. Let us understand this with an example,
Suppose Raju requires a loan of Rs. 10,000, an advance of Rs. 8,000 and a deposit of Rs. 7,000. In this case, this sum exceeds the Rs. 20,000 mark, so Raju cannot accept the entire amount in cash.
- An individual has already received a loan that has not yet been repaid, and the total loan, deposit or advance amount exceeds Rs. 20,000.
In simple terms, one must accept loans or deposits in no other form than bank drafts, electronic transfers, or account payee cheques for an aggregate amount of over Rs. 20,000.
What is an aggregate amount?
You will know about it in the following sections.
Specified Modes of Transaction under Section 269SS
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
- Credit Card
- Debit Card
- RTGS
- NEFT
- BHIM
- IMPS
- UPI
Exemptions of Section 269SS
Specific exemptions under Section 269SS of the income tax act are discussed below. This includes deposits or loans acquired or accepted from the following entities:
- The Government
- A corporation created by the Central, Provincial or State Act
- Any cooperative bank, banking organisation, post office savings bank or banking company
- A government company, as Clause (45) of Section 2 of the Companies Act, 2013 outlines
- Any association, institution, class or institution, body or bodies notified in the Official Gazette
Also Read – How To Use Online Income Tax Calculator?
Regarding this, if any individual receives a loan or deposit from the entities mentioned above, or if these entities accept deposits or loans from any individual, the restrictions under Section 269SS of the income tax act will not be applicable.
In addition, this Section under the Income Tax also provides an exemption under the following conditions:
- If an individual who earns only through agricultural activities takes loans or accepts deposits from another individual earning through agricultural activities only.
- If someone receives cash from relatives or close friends in an emergency cash crisis. However, here, the intention must not be to avoid taxes.
- When partners in a partnership company are investing cash capital for the company.
Individuals or entities not falling under such exemptions will have to pay penalties.
Also Read- Deductions Under Section 80C Of The Income Tax Act
Penalty on Violation of Section 269SS of the Income Tax Act
The violation of Section 269SS of the Income Tax Act will result in a penalty equalling 100% of the amount involved if it is above the prescribed limit.
Let us understand the effects of violating this section through some examples.
The responsibility to steer clear of such penalties is on the acceptor of such an amount of money. For instance,
Suppose Mr Dubey owed Rs. 50,000 to Mr Sharma. On December 4 2021, Mr Sharma received the entire sum as a deposit in cash. As Mr Sharma is the acceptor here, he will be penalised under Section 271D because his accepted deposit exceeded Rs. 20,000.
As mentioned earlier, the aggregate amount is the total amount that someone receives in a single day. This includes previous unpaid amounts. To meet the compliances under this Section, the total amount that an individual receives in a day should be considered without considering the transaction’s nature. For example,
Suppose Mrs Agarwal received Rs. 30,000 in cash on December 4 2021, as a deposit amount from Ms Singh. Out of the total amount, Rs. 10,000 belongs to the same day and Rs. 20,000 belongs to previous deposits.
In this case, the aggregate amount will be the penalty, i.e., Rs. 30,000. As a result, Mr Agarwal will have to pay a penalty of Rs. 30,000 under Section 271D.
Final Word
The primary objective behind Section 296SS of the Income Tax act was to counteract tax evasion in the country. The aim was to prevent currency transactions, thereby allowing banks draft and account payee cheques for permissible monetary transactions.
FAQs on Section 269SS
Ans: No, this will be a violation of Section 269T. The Section states that individuals cannot repay any amount exceeding Rs. 20,000 through the medium of cash. So, to avoid penalties, make sure to repay a loan through ECS, bank draft or account payee cheque.
Ans: Yes, on March 9 2017, RBI announced the inclusion of this Section to NBFCs across the country. This decision was made after a raid conducted by the Income Tax Department led to the detention of some individuals who were stashing illegal cash through false cash transactions.
Ans: Yes, Section 269SS is applicable to every person taking a loan above Rs 20,000 even if it is for a personal purpose from any source.
Ans: With effect from the 1st day of September 2019, the words “bank account”, got substituted with the words “bank account or through such other electronic mode as may be prescribed”.
Ans: The term specified sum in this Section refers to the overall sum of money receivable. This could be an advance or deposit concerning the transfer of any immovable property or asset. This definition is applicable even if the transfer does not take place.
Ans: The Income Tax Department had previously stated that one could repay the loan amount in cash to any HFC or NBFC if every instalment is less than Rs. 2 lakh. To stop the use of large cash transactions and control black money in the economy, the government came forward with Section 269ST of the income tax act.
Ans: The tax auditor is entitled to mention any transaction that falls under Section 269SS of the Income Tax in Clause 31 of Form 3CD. Regarding this, both parties, namely the receiver and payer, also have to report any transactions that exceed Rs. 20,000.
Disclaimer
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
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