Everything About Loan Or Deposits Under Section 269SS of Income Tax Act, 1961

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The Indian taxation system is complex, and one may seem to get confused with so many sections and provisions. But some people try to hide their earned money by transacting them as a repayment of loan or cash deposits to evade this taxation system and its constituents. Such manipulation is an offense in the eyes of laws, and this is the reason why some people have to face sudden raids and penalties. There are a few sections that state the conditions on such cash deposits and loan repayment protect from such evasion. Section 269SS was introduced for the same purpose and helped in identifying and punishing people who accumulate black money in the name of false transactions.

What Does Section 269SS Of Income Tax State?

It covers loans or deposits under Sec 269SS of Income Tax Act 1961. It states that one can accept the loan, advance, deposit concerning the transfer of immovable property from another person apart from options like valid account payee cheque, bank draft, or use of electronic funds transfer system through a bank account against this transaction, if:

  • The loan repayment or deposit amount is lesser than Rs 20,000, or
  • The sum of the total amount of loan, advance, and deposit from a depositor/creditor does not exceed Rs. 20,000
  • If a loan or advance hasn’t been paid back, the unpaid amount should be lesser than Rs. 20,000, or
  • The sum of the amount received according to the above conditions is not more than Rs. 20,000
  • So, if we conclude conditions related to loans or deposits under section 269SS, it is clear that no person can accept cash transactions as a loan, deposit, or advance that accounts for more than Rs. 20,000 as total from a single source (a person or entity as depositor or creditor).

Exceptions Of Section 269SS Of Income Tax Act That You Should Know?

There are many entities that are exempted from this section and can accept cash transactions. Moreover, in some special situations, this provision is not applied. These entities or conditions are:

  • Government
  • Banking organization, co-operative banks, as well as post office banks
  • An organization that is set up with the implementation of central, or state, or provincial act
  • Companies entitled as “government companies” as per the clause (45) of section 2 of Companies Act, 2013 (18 of 2013) 
  • All the entities, institutions, associations, or their collective body or class have a written notification for this cause in the Official Gazette by the Central Government.
  • Receiving loans, subsidiary, deposits, or cash reward from the above-exempted entities
  • The people indulged in agriculture who are also exempted from this provision are the giver and the receiver, both obtain their income from agriculture (as prime source), and neither of them has taxable income.
  • When people receive loan or advance of money from relatives during a financial crisis without any intention of evading taxes
  • Cash capital introduced by partners in a partnership firm

Terms Related To Loans Or Deposits Under Section 269SS Of Income Tax Act?

  • A banking organization or company refers to a registered company that implements all the provisions defined in the Banking Regulation Act, 1949 (10 of 1949) and involves any banking institution as mentioned in section 51 of the same act.
  • A co-operative bank means any institution that fulfills the criteria declared in Part V of Banking Regulation Act, 1949 (10 of 1949)
  • The term Government company means any company whose 51% or more share of ownership are held with the Government (central, state, or both)

Penalty For Violating Section 269SS Of Income Tax Act?

In case if this section is violated, then the penalty can be 100% amount of the loan or deposit as stated in sec 271D.

Hence it is crucial to make the transaction more than Rs. 20,000 via cheque, draft, electronic bank transfer as per provision for loans or deposits under sec 269SS of Income Tax Act 1961. This way, you will be able to give a realistic image of your records to the authorities. To maintain all your bills receivables or payables from all the clients, you can also try installing Marg Books on your android or iOS device. It is a robust ERP system integrated with MargPay a secure and fast processing payment gateway and cloud technology. It will be helpful for you to manage all bills in one place with smart features like auto-reminder and auto reconciliation.

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