Income Tax

Section 269SS of Income Tax Act 1961: An Overview

The practice of tax avoidance is quite prevalent among assessees for the purpose of tax savings. However, if it is done through unfair means or by the concealment of information/income from tax authorities, such avoidance is termed tax evasion, which is a serious criminal offence. The person may have to face an enormous penalty as well as imprisonment upon being caught while doing such an Act. Hence in order to avoid such situations, people found ways for explaining their transactions. We discuss Section 269SS of Income Tax Act 1961.

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 providing an explanation for the source of such cash to be a loan or deposit from friends and family, as there wasn’t any limit on the amount of such loan/deposit in the Income Tax Act, 1961¹(‘the Act’). Therefore section 296SS was introduced to bring such transactions within the scope of the Act for curbing the movement of black money. The aspects with regard to this section shall be discussed in this article.

Section 269SS: Meaning

No loan or deposit or any specified sum otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode  may be accepted by any person from anyone, if –

• The loan or deposit or specified sum amounts to Rs. 20,000 or more, or

For example, if A intends to take a loan of Rs 50,000 from B, he cannot accept it in cash due to it being violative of Section 269SS as the amount exceeds Rs 20,000.

• The sum total amount of the loan, deposit, and specified sum is Rs. 20,000 or more.

For example –X wants to take a loan of Rs. 6,000, a deposit of Rs. 9,000 and an advance of Rs. 7,000 from Y; the same cannot be accepted by Y   in cash due to its total sum being 22,000.

In a case, there has been the receipt of a loan, deposit or specified sum to any person from the depositor (person giving the loan, deposit or specified sum), but there hasn’t been any repayment of the loan or deposit or specified sum in such case if the unpaid loan or deposit or-specified sum is Rs. 20,000 or more.

For example, S had accepted a loan from  T  dated 1st June 2020 by crossed cheque for Rs 19,000. On 15th April 2021, S intends to take another loan from Vineet for Rs 2000 (the earlier loan remaining unpaid on the date). Then, due to the total loan outstanding being Rs 21,000 (20,000 + 2,000) being more than Rs 20,000, the provisions of Sec 269SS will be applicable. Hence, S can’t accept the new loan on 15th April 2021, the mode of cash.

Therefore simply put, there can’t be the acceptance of a cash loan or deposit of Rs 20,000 or more by a person from another person in a single day.

Specified Modes of Transaction

According to the income tax rules, the specified modes of the acceptance of loans or deposits or specified sums are elaborated below

• Account payee cheque/bank draft
• Electronic Clearing System (ECS) through a bank account; or
• Net Banking;
• Credit Card;
• Debit Card;
• RTGS;
• NEFT;
• BHIM,
• IMPS; and
• UPI.

Exceptions to 269SS

The following entities fall under the exemption of Section 269SS

• The government
• Any savings bank, post office , banking company, or cooperative bank
• Any corporation established by a Central, State or Provincial Act
• Any government company as defined in clause (45) of section 2 of the Companies Act, 2013 (18 of 2013)
• Any institution, association or body or class of institutions, associations or bodies notified in the Official Gazette.

 A person earning only agricultural income accepts a loan or deposit from another person also earning only agricultural income.

The persons might have other income (in addition to agricultural income) chargeable to tax under the ITA. However, there shouldn’t be any income tax liability after allowing exemptions and deductions.

Other Exceptional Cases

• Receiving cash from relatives during emergencies. Here the intention shouldn’t be for the evasion of taxes.
• Partners contributing cash capital into a partnership firm.
• Where there is mere book entry without any receipt of money in cash or any other form.

Section 269SS Examples

Mr C had accepted a loan from ABC on 1st April 21 by account payee cheque for Rs 10,000. He repaid 3,000 in cash on 03.08.21, 2021. On 25.09. 2021 Mr P takes another loan from ABC for Rs 15000 in cash (the earlier loan remaining unpaid on the date).

Since the combined loan outstanding is Rs 22,000 (10,000 – 3,000 + 15,000), which is more than Rs 20,000, the provisions of Sec 269SS are violated.

Mrs J accepts a loan of Rs 12,000 in cash from Mr K, and she also accepts a deposit of Rs 15,000 in cash from Mr Z on the same day.

Section 269SS is not violated as the amount is not more than Rs 20,000 from one person.

Mr  J took a loan of Rs 10,000 in cash from Mr K on 12.12. 2021 and accepted a further loan of Rs 9,000 from Mr J by an account payee cheque.

Since the new loan is taken in a prescribed mode, there isn’t any violation of the provisions of Sec 269SS.

Penalty on contravention of Section 269SS

The quantum of penalty shall be 100% of the loan or deposit amount that can be levied by the assessing officer. A person accepting loans and deposits in cash above the prescribed limit shall be obligated the payment such a penalty. Hence, the receiver of the money must ensure compliance with the provisions of Section 269SS is complied with while accepting payments. However, if the person successfully proves the existence of a reasonable cause for such transactions and the absence of any malafide intentions, he/she may not be penalised.

Conclusion

It is essential for the assessee to be aware of Section 269SS, along with the aspects related to the same, in order to avoid any undue penalties due to confusion regarding these provisions. 

Read Our Article: Penalty for Breach of Section 269SS of the Income Tax Act, 1961-Judgement

1. https://incometaxindia.gov.in/pages/acts/income-tax-act.aspx