Section 269SS of Income Tax Act

Section 269SS of the Income Tax Act deals with restricting individuals from taking any loan or accepting any deposit from any other person using payment modes other than those specified under the section. The Indian government has always focused on ensuring that transactions are accounted for and that no money is used for illicit activities in India. Mostly, payments in cash are used as black money to carry out suspicious activities as they do not leave any financial blueprints, making it impossible for the government to hold the individual accountable for providing transaction details and paying relevant taxes. Hence, the Indian government and the Income Tax Department introduced section 269SS in the Income Tax Act to discourage taking or accepting funds above a specified limit in cash.

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.

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• Section 112A of Income Tax Act

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Exceptions to 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.

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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