[Section 269T] : Mode of Repayment of Certain Loans or Deposits and Specified Advance Received

Here’s a detailed explanation of Section 269T of the Income Tax Act, 1961, which governs the mode of repaying loans, deposits, or specified advances:

1. Key Provisions of Section 269T

1. Prohibition on Cash Repayments:

• • No person can repaya loan, deposit, or specified advance of ₹20,000 or more in cash .
  • This includes intereston such amounts. For example, repaying ₹18,000 (principal) + ₹3,000 (interest) = ₹21,000 in cash violates Section 269T .

2. Aggregate Threshold:

• • Applies if:
    • A single repayment is ₹20,000+ (e.g., ₹25,000 loan repayment in cash) .
    • The total outstanding(including prior unpaid amounts) crosses ₹20,000 .

3. Permitted Modes of Repayment:

Transactions must be through:

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

Exceptions to Section 269T

The restriction does not apply to repayments made to:

1. Government entities(Central/State/Local authorities) .
2. Banks, cooperative banks, or post office savings banks.
3. Corporations established by statute(e.g., LIC, RBI) .
4. Notified institutions(as per Official Gazette) .

Penalties for Violation

• 100% penaltyon the repaid amount (e.g., ₹30,000 cash repayment → ₹30,000 penalty) .
• Penalty may be waived under Section 273Bfor reasonable cause (e.g., medical emergency, banking outage) .

Examples of Violations

1. Personal Loan: Repaying ₹25,000 in cash to a friend violates Section 269T .
2. Business Debt: Settling a ₹30,000 vendor advance in cash is non-compliant .
3. Property Transaction: Refunding a ₹50,000 token amount for a cancelled flat deal in cash attracts penalties .

Reporting Requirements

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

Key Differences from Section 269SS

Note: Always use banking channels for repayments ≥₹20,000 to avoid penalties. For complex cases (e.g., agricultural loans, partner capital), consult a tax expert

Practical Examples

2.  Exceptions to Section 269T (Repayment of Loans/Deposits ≥ ₹20,000 in Cash)

Under Section 269T, repayment of loans, deposits, or specified advances of ₹20,000 or more must be made via account payee cheque/draft or electronic transfer. However, the restriction does not apply if repayment is made to the following entities in any mode (including cash):

1. Government Entities [Proviso to Section 269T]

Repayment can be made in cash (even if ≥ ₹20,000) if the recipient is:

• Central/State Government
• Local authorities (Municipalities, Panchayats, etc.)
• Government-owned corporations

Example: Repaying ₹50,000 in cash to a municipal corporation for a loan taken is allowed.

2. Banks & Financial Institutions

Cash repayment is permitted if made to:

• Banks (Public/Private/Cooperative)
• Post Office Savings Banks
• RBI, NABARD, SIDBI, EXIM Bank, etc.

Example: Settling a ₹1 lakh personal loan from SBI in cash does not violate Section 269T.

3. Institutions Notified by the Government

Certain entities exempted via official gazette notifications.

Key Notes

• No General Exception for Individuals/Relatives: Even if repaying a family member, cash repayment ≥ ₹20,000 is prohibitedunless the recipient falls under the above categories.
• Interest Included: If principal + interest exceeds ₹20,000, the rule applies.
• Penalty for Violation: 100% penaltyunder Section 271E (e.g., repaying ₹30,000 in cash → ₹30,000 penalty).

Comparison with Section 269SS (Accepting Deposits/Loans)

3.  Consequences of Violating Section 269T (Penalty under Section 271E)

If a taxpayer repays a loan, deposit, or specified advance of ₹20,000 or more in cash (instead of through prescribed banking channels), they violate Section 269T of the Income Tax Act, 1961, and face penalties under Section 271E. Below are the key consequences:

1. Penalty Amount

• 100% of the repaid amount:
  • If a taxpayer repays ₹50,000 in cash, the penalty will be ₹50,000.
  • Interest included: If the repayment includes interest (e.g., ₹45,000 principal + ₹5,000 interest = ₹50,000), the penalty applies to the full amount.

2. Who Can Levy the Penalty?

• Only a Joint Commissioner of Income Tax (JCIT)or higher authority can impose this penalty.

3. Exceptions Where Penalty Does Not Apply

No penalty is imposed if repayment is made to:

• Government entities(Central/State/Local authorities).
• Banks, post offices, or cooperative banks.
• Corporations established by law(e.g., LIC, RBI).
• Notified institutions(as per government gazette) .

4. Can Penalty Be Avoided?

Yes, if the taxpayer proves “reasonable cause” under Section 273B, such as:

• Genuine financial emergency(e.g., medical crisis, banking failure).
• Bona fide belief(e.g., lender insisted on cash repayment, but transaction was genuine and recorded in books) .
• No tax evasion intent(e.g., repayment was transparent and not to conceal income) .
• Example:
• In Sandeep Kaur Gill v. Union of India(2025), the Chhattisgarh High Court waived the penalty because the borrower repaid cash under pressure from the lender (Tata Finance) and the transaction was genuine .

5. Time Limit for Penalty Proceedings

• The penalty order must be passed within 6 monthsfrom the end of the month when proceedings were initiated.
• If delayed (e.g., penalty notice issued in Dec 2007but order passed in March 2012), the penalty is invalid .

6. Additional Consequences

• Tax audits: Violations must be reported in Form 3CD (Clause 31)by auditors .
• Double penalty risk: If the same amount is taken in cash (violating Section 269SS)and repaid in cash (violating Section 269T), penalties under both Sections 271D & 271E apply .

Example:

• If a person takes ₹50,000 cash loan(penalty: ₹50,000 u/s 271D) and repays ₹55,000 in cash (penalty: ₹55,000 u/s 271E), the total penalty = ₹1,05,000 .

Key Takeaways

✅ Always repay loans ≥₹20,000 via:

• Account payee cheque/draft
• Electronic transfer (NEFT/RTGS/UPI)

❌ Avoid cash repayments unless exempt (e.g., to banks/govt).

⚠ If penalized, argue:

• Reasonable cause(emergency, lender’s demand).
• Genuine transaction(no tax evasion).
• Procedural lapse(delay in penalty order).

For legal disputes, refer to Section 273B and relevant case laws