Section 269SS of Income Tax Act, 1961: Detailed Analysis and Practical Example

Giving unsecured loans to others is a routine transaction conducted by most people. However, to ensure that loans do not act as a catalyst for tax evasion, the government has inserted Section 269SS and section 269T under Income Tax Act, 1961 that deals with the payment and repayment of loans. This is to ensure that all the unsecured loan or deposit transactions between the assessees are accurately reported to the government. What does section 269SS and section 269T lay down and why you should comply with these sections?

What is Section 269SS?

As per Section 269SS of Income Tax Act, 1961, a person cannot accept a loan or deposit or any other specified sum (specified sum means advance or otherwise in relation to the transfer of any immovable property) from another person otherwise by an account payee cheque, account payee bank draft or use of electronic clearing system through the bank account or any other specified manner if –

• The amount of loan or deposit or any other specified sum is Rs. 20,000 or more or,
• The sum total of the loan or deposit or any other specified sum is Rs. 20,000 or more or,
• If the person has already received a loan or deposit or any other specified sum from the depositor (person giving loan or deposit or specified sum) but it has not    been repaid, then in such case, the outstanding loan or deposit or specified sum is Rs. 20,000 or more. 

It should be noted that section 269SS places responsibility on the person ACCEPTING / TAKING loan, deposit or specified sum.

What are the Specified Modes of Transactions for Section 269SS of income tax Act

Following are the specified modes of transactions that can be used for acceptance or repayment of loans, deposits or specified sums as per Section 269SS of income tax Act:

•  Account payee cheque/bank draft,
•  Electronic Clearing System (ECS) through a bank account; or
•  Net Banking;
•  Debit Card;
•  Credit Card;
•  NEFT;
•  RTGS;
•  IMPS;
•  BHIM;
•  UPI

Practical Examples of Section 269SS of Income Tax Act.

Here are some of the practical examples of Section 269SS of income tax Act:

Exceptions to Section 269SS of income tax Act

Following are some of the exceptions to Section 269SS that you should keep in mind:

a.  In case the loan or specified sum is taken or accepted from/by the following entities:

•  Government
•  Banking company, post office or savings bank account
•  Corporation established by the central, state or provincial act
•  Government company as defined under section 2(45) of the Companies Act, 2013
•  Any institution, body or association as notified in the Official Gazette

1. A person who is earning only agricultural income accepts loans or deposits from another person having only agricultural income
2. The limit should be considered as Rs. 2,00,000 instead of Rs. 20,000 in case the loan or deposit is accepted by a primary cooperative agricultural and rural  development bank or primary agricultural credit society from its members or vice versa.

What is Section 269T?

While we discussed Section 269SS, we also need to understand the implications of Section 269T of income tax. While Section 269SS covers acceptance of loan, Section 269T covers repayment of loans. As per the provisions of this section, a person cannot repay any loan or deposit or any specified sum otherwise by an account payee cheque, account payee bank draft or use of an electronic clearance system through the bank account if –

• The amount of the loan or deposit, including interest, is Rs. 20,000 or more,
• The aggregate amount of such loan or deposit, including interest, held by such person in his own name or jointly with another person is Rs. 20,000 or more.

Penalty for Section 269SS of income tax Act

Abiding with the provisions of Section 269SS is important because non-compliance comes with a hefty penalty as prescribed by Section 271D. As per this section, if a person takes or accepts loan or deposit or any other specified sum in contravention of the provisions of section 269SS, then such person shall pay a penalty equal to 100% of the loan, deposit or sum so accepted. On similar lines, in case a person fails to comply with the requirements of Section 269T, then he shall be liable to pay a penalty equal to the amount of loan, deposit or specified sum so repaid. 

In a Nutshell

Section 269SS and 269T of income tax are some of the most important sections of the Income Tax Act, 1961 that aims to avoid dubious transactions disguised as loans or deposits. It ensures that any loans given by one person to another are given through electronic medium and responsibility has been placed on the persons accepting and repaying the loans to comply with the provisions. The stringent penalty in place ensures adherence to these provisions by the people. Therefore, you should always consult your tax professional before entering into any such cash transactions to save yourself from significant penalties. For more clarification or queries on Section 269SS of income tax Act, reach out to ASC Group.

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