[Section 269SS]: Mode of Taking or Accepting Certain Loans, Deposits and Specified Sum

Here’s a detailed explanation of Section 269SS of the Income Tax Act, 1961, which governs the mode of accepting loans, deposits, and specified sums:

1. Key Provisions of Section 269SS

1. Prohibition on Cash Transactions:

• No person can accept a loan, deposit, or specified sumof ₹20,000 or more in cash from another person.
• A “specified sum” includes advances or payments related to the transfer of immovable property, even if the transfer doesn’t occur.

2.  Aggregate Threshold:

• The limit applies to:
  • A single transaction of ₹20,000 or more.
  • The total of multiple transactions(e.g., loan + deposit + advance) from the same person exceeding ₹20,000.
  • Unpaid balances: If an earlier loan/deposit from the same person remains unpaid, and a new transaction pushes the total outstanding to ₹20,000+, cash acceptance is barred.

3. Permitted Modes of Payment:.

   Transactions must be through:

• • Account payee cheque/bank draft.
  • Electronic channels (NEFT, RTGS, UPI, IMPS, BHIM, etc.).

Exceptions to Section 269SS

The restriction does not apply to transactions involving:

1. Government entities, banks, or cooperatives(e.g., RBI, public sector banks).
2. Agricultural income earners(if both parties have no taxable income).
3. Emergency cash from relatives(if no tax evasion intent) .
4. Capital contributions by partnersin a partnership firm.
5. Book entries(no physical cash exchange).

Penalties for Violation

• 100% penaltyon the amount accepted in cash (e.g., ₹50,000 penalty for a ₹50,000 cash loan).
• Penalty may be waived if the taxpayer proves reasonable cause(e.g., medical emergency, banking outage) .

Practical Examples

Reporting Requirements

• Tax auditors must report violations in Form 3CD (Clause 31)during audits

2.  Section 269SS Not to Apply in The Following Cases [Provisos 1 And 2 To Section 269SS]

Under Section 269SS of the Income Tax Act, 1961, there are two key exceptions (provisos) where the restrictions on accepting loans, deposits, or specified sums in cash (₹20,000 or more) do not apply.

Proviso 1: Government, Banking & Cooperative Institutions

The cash transaction limit does not apply if the loan/deposit is accepted from:

• The Government(Central/State/Local authorities).
• Banks(including public/private sector banks, co-operative banks).
• Post Office Savings Banks.
• Any corporation established by a Central/State/Provincial Act.
• Government-owned companies or institutions.

Example: Accepting ₹50,000 in cash as a loan from a nationalized bank (like SBI) is allowed.

Proviso 2: Agriculturists with No Taxable Income

The restriction does not apply if:

• The person giving the loan/depositis an agriculturist.
• The recipientis also an agriculturist.
• Neither has any taxable income(other than agricultural income).

Example: A farmer (with only agricultural income) lends ₹30,000 in cash to another farmer (also tax-exempt). This is permitted.

Key Notes

1. Documentation: Even if exempt, maintain proper records (e.g., bank statements, land ownership proofs for agriculturists).
2. No General Exemption for Relatives: Loans from relatives in cash (≥₹20,000) are still coveredunless they fall under Proviso 1 or 2.
3. Other Exceptions:

• • Capital contributions by partners to a firm.
  • Transactions via book adjustments (no physical cash).