Section 269SS and 269ST of Income Tax Act

Sound financial management is necessary for individuals and businesses alike. When personal funds fall short of business needs, loans can provide essential finances. However, it is crucial to understand the importance of Sections 269SS and 269ST of the Income Tax Act before taking or repaying loans, especially in cash.

Read ahead to understand the details of 269SS and 269ST of the Income Tax Act, which will help you streamline the process of filing income tax returns.

What are Sections 269SS and 269T of the Income Tax Act?

Sections 269SS and 269T of Income Tax Act are rules that encourage using banks for financial transactions instead of cash.

Section 269SS says that you cannot accept loans or deposits of ₹20,000 or more in cash. This section binds you to use methods like bank transfers, checks, or online payments.

On the other hand, Section 269T states that the repayment of loans or deposits of ₹20,000 or more cannot be done in cash. So, if you are repaying a loan or deposit, the repayment amount exceeding ₹20,000 must be made through banking channels.

These sections aim to curb the generation of black money by discouraging cash transactions, which are often used to evade taxes. They also promote the use of digital payment methods, contributing to the growth of the digital economy.

What is Section 269SS of the Income Tax Act?

With Section 269SS in place, you cannot accept loans or deposits of ₹20,000 or more in cash. It means that if you are taking a loan or accepting a deposit of ₹20,000 or more, the transaction must be done through banking channels like cheques, drafts, or online transfers. This is done to avoid any tax evasion and promote transparency in financial dealings.

Specified Modes of Transactions Under Section 269SS

There are certain permitted modes of transaction under Section 269SS of Income Tax Act:

• IMPS
• RTGS
• UPI
• NEFT
• BHIM
• Cheque
• Bank draft
• Credit and Debit Card
• Electronic Clearing System

Exemptions Under Section 269SS of the Income Tax Act

While Section 269SS generally prohibits accepting loans or deposits of ₹20,000 or more in cash, certain exceptions exist. This section does not apply to transactions with:

• The Government
• Corporations or entities established by central, state, or provincial acts
• Banks, post office savings banks, and cooperative banks
• Government companies under the Companies Act, 2013
• Any institution or body notified in the Official Gazette

Additionally, there are some specific situations that are exempt:

• Farmers may accept loans or deposits in cash from other farmers.
• Cash loans from relatives during emergencies are exempt, provided the transaction is not intended for tax evasion .
• Cash investments in partnership firms are also exempt from Section 269SS.

Penalty for Violation of Section 269SS

If you violate Section 269SS by accepting cash loans or deposits exceeding the prescribed limit, it can result in a penalty equal to 100% of the amount received.

For example, imagine you borrow ₹50,000 from a friend. If you accept this money in cash, you’re breaking the rules of Section 269SS. The penalty for this violation would be a hefty ₹50,000, which is the same amount as the loan you received.

Therefore, as a recipient, you must ensure compliance with this section when accepting any payments. However, the penalty can be waived if the recipient validly justifies the cash transaction.

What is Section 269ST of the Income Tax Act?

Section 269ST of Income Tax Act, introduced in 2017, restricts receiving large cash payments. It prohibits any person from receiving ₹2 lakh or more in cash:

• It restricts multiple smaller cash payments from the same person on the same day, totaling ₹2 lakhs or more.
• It does not allow a single transaction exceeding ₹2 lakh to be received in cash.
• Situations like weddings or large events where the same person might make multiple payments violate Section 269ST if the total cash received exceeds ₹2 lakhs.

To understand this better, let us take an example of the first condition. Imagine you’re selling your car for ₹3 lakhs. Now, if the buyer pays you cash in 3 installments of ₹1 lakh each on the same day, it will violate Section 269ST. This is because you received a total of ₹3 lakhs in cash from the same person on the same day, even though it was split into multiple transactions.

Exemptions Under Section 269ST of the Income Tax Act

While certain restrictions are imposed by Section 269ST, it also offers some exemptions. The list of exemptions under Section 268ST is:

• Any cash receipt by the Government
• Cash receipts by banking companies
• Cash receipts by post office banks
• Cash receipts by cooperative banks

Penalty for Violation of Section 269ST

Violation of Section 269ST carries a substantial penalty. Receiving cash exceeding ₹2 lakh, whether in a single transaction, as an aggregate from one person in a single day, or for transactions related to a single event or occasion from one person, can result in a penalty equivalent to the entire amount received in cash (as per Section 271DA). Therefore, it is crucial to avoid receiving cash payments of ₹2 lakh or more in any of these scenarios.

Reporting of Transactions under Sections 269SS and 269T

Clause 31 requires tax auditors to report all transactions exceeding the limits set by Sections 269SS and 269T.

• For loans and deposits received: The auditor must report details such as the lender/depositor’s name, address, PAN, and the amount of the loan or deposit.
• For “specified sums” received: This includes any advance payments that may not be strictly classified as loans or deposits. The auditor must report the payer’s name, address, and PAN (if available).
• For loan/deposit repayments: The auditor must report details of all repayments exceeding the limit set by Section 269T, regardless of the payment method.
• For repayments exceeding the limit made through non-prescribed methods (like cash): The auditor must specifically report these transactions.
• For repayments exceeding the limit made through prescribed methods (like bank transfers): The auditor must also provide details of these transactions.

It is essential to note that clause 31 requires detailed reporting of both acceptance and repayment of loans/deposits and specified sums exceeding the limits set by 269SS and 269T. It also categorizes repayments based on whether they were received through acceptable channels.

Reasonable Causes Where No Penalty is Imposed for Violation of Section 269SS and Section 269T of the Income Tax Act

If you want to be saved from the penalties under Sections 271D and 271E (related to violations of 269SS and 269T, respectively), Section 273B is your option. However, this is only helpful if the violation was due to a reasonable cause, such as:

• Withdrawing or giving capital (₹20,000 or more) in cash to your partner is not considered a loan or deposit, and, therefore, it does not trigger the provisions of Sections 269SS or 269T.
• Depositing your earned income does not attract penalties under Section 271D.
• Payments between a partnership firm and its partners are not subject to these penalties.
• Repayments or acceptances recorded only in your accounting books (without actual cash exchange) are not considered loans or deposits and, therefore, avoid penalties under Sections 269SS and 269T.
• Genuine cash transactions made due to emergencies are also generally exempt from penalties.

Things to Keep in Mind to Prevent Infringement of Section 269SS and 269T

To avoid violating sections 269SS and 269T of the Income Tax Act, it is crucial for you to maintain accurate records. It is important to:

• Document all payments received and made, including dates and transaction amounts, through formal records or book entries.
• Maintain a record of all transactions linked to specific bills, noting credit and debit dates.
• Keep records of payee details and the corresponding bills for all payments received or made.
• Regularly verify all transactions against their respective bills.

Comparisons of Section 269SS, 269T and 269ST of the Income Tax Act

It is important to remember that these sections are designed to promote transparency and discourage large cash transactions in the Indian economy.

Feature	Section 269SS	Section 269T	Section 269ST
Focus	Acceptance of loans/deposits/specified sums	Repayment of loans/deposits/specified sums	Receipt of money
Limit	₹20,000 or more in cash	₹20,000 or more in cash	₹2,00,000 or more in cash: In aggregate from a person in a day For a single transaction For transactions relating to one event or occasion from a person
Mode of Transaction	Prohibits acceptance in cash; requires banking channels	Prohibits repayment in cash; requires banking channels	Prohibits receipt in cash
Purpose	Curbing cash transactions related to loans/deposits	Curbing cash transactions related to loan/deposit repayments	Curbing large cash transactions overall
Penalty (if violated)	100% of the loan/deposit/specified sum accepted in cash	100% of the loan/deposit/specified sum repaid in cash	100% of the amount received in cash (Section 271DA)
Applicability	Applies to any person accepting loans/deposits/specified sums	Applies to any person repaying loans/deposits/specified sums	Applies to any person receiving money

Conclusion

Understanding Sections 269SS, 269T, and 269ST of the Income Tax Act is crucial for proper financial dealings while Income Tax efiling . The goal of these sections is to reduce tax evasion and promote digital transactions. This helps in aligning with the government’s vision of a cashless economy.

By maintaining accurate records, choosing appropriate modes of transaction, and being mindful of the exemptions and penalties, you can effectively manage your finances while staying within the legal framework. You should embrace these practices not just to avoid penalties but to contribute to a more accountable and transparent financial system.

FAQs on Section 269SS and 269ST of Income Tax Act

1

What is the difference between 269ST and 269SS?

269SS restricts cash acceptance of ₹20,000 or more for loans/deposits. 269ST prohibits receiving ₹2 lakh or more in cash in aggregate from a person in a day, for a single transaction, or for related events.

2

What is the limit for cash transactions under Sections 269SS and 269T?

269SS limits cash acceptance for loans/deposits to ₹20,000. 269T restricts cash repayment of loans/deposits to ₹20,000.

3

Can I repay a loan amounting to more than ₹20,000 in cash?

No, repayment of a loan exceeding ₹20,000 cannot be made in cash as per Section 269T.

4

Does a cash transaction of ₹20,000 or above invite penalty?

Receiving ₹20,000 or more in cash for loans/deposits (269SS) or repaying ₹20,000 or more in cash for loans/deposits (269T) can attract penalties. Receiving ₹2 lakh or more in cash (269ST) also invites penalties.

5

Is Section 269SS applicable if a loan of ₹30,000 is taken for personal purposes?

Yes, Section 269SS applies regardless of the purpose of the loan if the amount received in cash is ₹20,000 or more.

6

What is the penalty under Section 269T?

The penalty under Section 269T is equal to the amount of loan or deposit repaid in cash exceeding ₹20,000.

Suggested Readings

1. Understanding Section 139 of the Income Tax Act


2.Section 80C Deductions as per Income Tax Act, 1961