Sections 269SS & 269T of the Income Tax

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Provisions of Section 269SS and Section 269T

Finance plays an important role in every business. Most of the times, the own finances of a person are not sufficient to fulfill the requirements of his/her business so he/she has to take loans and accept deposits. However, before taking a loan or accepting some amount of deposits, it is necessary to know the restrictions that the Income Tax Department imposes under Section 269T and Section 269SS.

These sections regulate the mode through which one accepts the deposits and takes loans and the mode through which one repays these.

What is Section 269SS?

As per Section 269SS, any deposit or loan or any specific amount should not be accepted or taken from any person other than by an account payee bank draft, account payee cheque, or through electronic clearing system via bank account, if:

  1. The amount of deposit or loan or specified sum is Rs.20, 000 or more.
  2. The sum total of deposit, loan, and the specified sum is Rs.20, 000 or more. To understand this, let us take an example, suppose Rajat wants a loan of Rs.9, 000 and advance of Rs.7, 000, and deposit of Rs.6, 000 from his friend Anand. However, he cannot accept this whole amount in cash as it is more than Rs.20, 000 (it is Rs.22, 000).
  3. A person has already got the loan or specified sum or deposit through the depositor; however, the amount of loan or specified sum, or deposit has not been paid back. In such a situation, if the specified sum, deposit, or loan is Rs.20, 000 or more.
  4. The sum of the above three points is Rs.20, 000 or more.

In nutshell, we can say that an individual is not allowed to accept cash deposit or loan of Rs.20, 000 or more from other people.

Exemptions of Section 269SS

The exceptions or exemptions of Section 269SS are:

  1. Any specified sum, loan, or deposit ‘accepted or taken from’ or ‘accepted or taken by’ the below-mentioned entities –
    • The Government
    • Any corporation established by the State, Central, or Provincial Act
    • Any post office savings bank, banking organization, or corporative bank
    • Any Government organization mentioned in clause (45) of section 2 of the Companies Act, 2013 (18 of 2013)
    • Any institution, body, association, class of institution, bodies or associations mentioned in the Official Gazette

In this way, if a person receives a loan or specific sum or deposits from any of the entities mentioned above, or if the entities accept any deposit or loan or some specific sum from any individual, the provisions of Section 269SS of the Income Tax Act will not enforce.

  1. An individual having agricultural income only accepts deposits or takes loans from another person who is also earning income from agriculture only.
  2. If one receives cash from his/her relatives at the time of emergency. The intention here should not be to avoid taxes.
  3. When the partners are contributing cash capital in some partnership firm.

Penalty on Dispute of Section 269SS

In such a situation, 100% of the deposit or loan is the amount of penalty that is levied by the officer accessing it.

What is Section 269T?

Section 269T of the Income Tax Act prohibits an individual to repay the deposit or specified sum, or loan otherwise than by a bank draft of an account payee or account payee cheque, or through electronic clearing system of a bank account, if –

  1. The deposited amount of deposit or loan, including the interest amount, is Rs.20, 000 or more.
  2. The total sum of the deposit or loan adding the interest amount held by an individual in his/her own name or with some person (jointly) is Rs.20, 000 or more.

In other words, a person is not allowed to repay the deposit or loan in cash, if the amount is equal to Rs.20, 000 or more.

Exemptions of Section 269T

An individual repaying Rs.20, 000 or more for the repayment of deposit or loan does not have to obey the Section 269T if he/she pays to the below-mentioned parties:

  • The Government
  • Any organization established by the State, Central, or Provincial Act
  • Any banking organization, co-operative bank, or post office savings account
  • Various notified institutions
  • Any government organization that is defined in Section 617 of the Companies Act, 1956

Penalty on Dispute of Section 269T

In such a case, 100% of the deposit amount or loan is paid as a penalty by the officer accessing.

Situations When No Penalty is Levied under Section 271E or 271D of the Income Tax Act, 1961

According to Section 273B of the Income Tax Act, 1961, there is no penalty levied on an individual if he/she fails to obey the inclusions of section 269T or 269SS because of some reasonable cause. The reasonable causes according to the judicial decisions are given below:

  • Receipt or Repayment of Partners’ Amount: If one of the partners adds cash capital in the organization or withdraws Rs.20, 000 or more, then the provisions of section 269T and section 269SS are not attracted because the capital’s introduction and withdrawal are not considered as deposits or loans.
  • No Penalty is Imposed under Section 271D When Deposit is Accessed as Income: There is no penalty imposed for the income deposited.
  • Amount Paid by the Partner to Firm or Vice-Versa: The amount that is paid by the firm to partner or vice-versa does not levy penalty.  
  • Repayment or Acceptance by Journal Entry Does Not Attract Penalty under Section 269SS or 269T: Repayment or acceptance via Journal Entry is not considered as ‘deposits or loans’. Therefore, this kind of payment does not attract any kind of penalty under section 269SS or section 269T of the Income Tax Act, 1961.
  • Any Genuine Transaction Made at the Time of Emergency Does Not Levy Penalty: Cash that is paid to meet emergency situations also does not attract any penalty.

FAQs on Sections 269SS & 269T of the Income Tax

Question 1: What is the intention behind the introduction of Section 269SS and 269T of the Income Tax Act, 1961?

Answer: The main intention behind the introduction of section 269SS and section 269T is to apply limitations on the cash transaction and cut down the amount of black money that affects the government's revenue. Generally, the black money interacts in cash and a huge amount of wealth that is unaccounted is kept and used as cash. Therefore, to get rid of unaccounted money, this section is introduced.

Question 2: When are section 269SS and 269T effective from?

Answer: This section is effective since the Financial Year 2017-18 and Assessment Year 2018-19.

Question 3: What are the consequences of a violation of section 269SS and 269T of the Income Tax Act?

Answer: These sections are proposed for the introduction of section 271DA in the Income Tax Act, 1961. Upon violation of these sections, a penalty equal to the amount of such kind of receipt can be levied via the Joint Commissioner.

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