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Section 269T & 269SS of the Income Tax Act are enforced to ensure compliance with tax* regulations around accepting and repaying loans and deposits. While Section 269SS deals with accepting loans, Section 269T deals with repayment of loans.
Finances are one of the most crucial aspects of an individual or business owner’s life. Managing finances effectively is necessary for achieving personal financial goals and ensuring the growth of a business. However, sometimes personal funds are not enough to meet your business requirements. In such cases, you can take a loan to meet your urgent financial needs.
However, before taking a loan, it is best to be aware of income tax* laws purview under Section 269SS & 269T. As tax evasion is one of the common problems faced by the Government of India, strict laws have been imposed to curb it.
So individuals need to mention Section 269SS & 269T while income tax efiling if they accept deposits or take loans or make repayment in cash. Let us look deeply at sections 269T and 269SS of the Income Tax Act.
What is Section 269SS & 269T?
The Income Tax Act is the regulatory guideline with various rules and guidelines to administer the tax imposition in the nation. Section 269SS and Section 269T are part of the Income Tax Act. These sections are imposed to deal with cash repayment and payment of loans and deposits.
By imposing these sections, authorities are promoting digital payments. Here in this section, we will learn, in detail, the intricacies of both these sections.
What is Section 269SS
Section 269SS of Income Tax Act explains that an individual cannot accept a deposit or loan made by another person other than in the specified modes of payment, if there are certain conditions, such as:
If the specified deposit or sum is ₹20,000 or more. For instance, if person X wants to take a loan of ₹40,000 from his friend Y, he cannot accept the same in cash.
Further, if the sum of the loan, specified amount and deposit is more than ₹20,000. Suppose a person wants to take a loan of ₹15,000 and along with it, an advance payment of ₹10,000; then he cannot accept this in cash as it exceeds the limit of ₹20,000.
Moreover, suppose the individual has received a loan from the depositor and the first amount of the loan and deposits has yet to be paid back by the individual. In that case, if the unpaid amount and request for a new loan are over ₹20,000, the individual cannot accept a loan in cash under section 269SS of the Income Tax Act.
For instance, suppose an individual has taken a loan of ₹10,000 on Sep 1, 2023, and requested another loan of ₹15,000 on Sep 15, 2023. If the earlier loan is still unpaid, and a new request has been made, then the rule of Sec 269SS is applicable. In this case, the individual cannot accept payment requested on Sep 15, 2023, via cash.
Specified Modes of Transactions under Section 269SS
The specified or acceptable modes of transaction under section 269SS of income tax act are:
UPI
NEFT
Cheque
Bank draft
RTGS
IMPS
Credit and Debit Card
Electronic Clearing System
BHIM
Exceptions to Section 269SS
However, there are certain exceptions to section 269SS, as listed below:
The income tax Section 269SS will not be enforced if the specified deposit, loan or sum is accepted from the following entities:
Government
Corporations or entities established by central, state, or provincial act.
Banks, post office banks, and other cooperative banks.
Government organisation that comes under the Companies Act, 2013.
Lastly, any institution or body specified under the Official Gazette.
Individuals whose livelihood is farming can take loans or deposits from another person who earns only from farming.
If the individual is taking out cash as a loan from their relatives during an emergency, such a loan is exempted under this section. However, the intention of taking a loan or deposit should not be to evade tax.
The cash invested in partnership firms is exempted from Section 269SS.
Penalty for Violation of Section 269SS
If the individual violates Section 269SS of the Income Tax Act, and has accepted a loan or deposits above the defined threshold via cash, he must pay the total or 100% of the loan and deposit amount. The receiver must ensure that the income tax law provision under Section 269SS should be met while accepting any payments. The penalty can be waived if the receiver presents the proper reason to the assessing officer for the transaction.
What is Section 269T
Section 269T of the IT act explains that an individual cannot repay a loan, deposits, or specified sum in other mode than specified, if there are certain conditions, such as:
If the amount deposited or loan, including the interest, exceeds the ₹20,000 limit.
Further, if the amount of deposit or loan, including interest, held by the person's name or jointly with another person is above ₹20,000 limit.
Exceptions to Section 269T
There are certain exceptions where an individual need not comply with Section 269T of the Income Tax Act if he is paying to the below-mentioned parties:
Government
Organisations or entities established or managed by state, central or provincial act.
Any banking organisation, cooperative banks, and post office banks.
Other notified institutions.
Government bodies come under section 617, Companies Act, 1956.
Penalty for Violation of Section 269T
If the individual has failed to follow the condition imposed by section 269T of the Income Tax Act, then as a penalty, they need to pay the total amount of loan repayment or deposits. However, Section 273B of ITA provides relaxation to individuals with reasonable cause to undermine Section 269T of the Income Tax Act.
Reasonable Causes Where No Penalty is Imposed for Violation of 269SS and 269T
There are various cases when a person does not have to pay any penalty for violating section 269SS and 269T under section 273B of the Income Tax Act. These cases are:
A genuine or legitimate transaction made at a time of urgency is exempt from penalty.
Under Section 271D, if the amount deposited is earned as income, there is no penalty levied on it.
Suppose the partner has receipt of an accepted or deposited amount made in partnership firm. In that case, the partner will not be liable for a penalty since it will not be considered a deposit or loan.
If there are journal entries of transactions of payment or repayment of loan, deposits or amount, they will not be subject to a penalty under Sections 269SS and 269T.
Reporting of Transactions under Sections 269SS and 269T
As per clause 31 of Form 3CD, a report generated by a tax auditor needs to disclose all the transactions violating the limit as mentioned in sections 269SS and 269T of the Income Tax Act. The auditor needs to report these transactions under various sub-clauses. However, both parties, the receiver and payer, must also mention the details of these transactions to auditors.
Things to Keep in Mind to Prevent Infringement of section 269SS and 269T
There are certain things to keep in mind to prevent infringement of these acts, such as:
Maintain the record or book entry of payment made and received with date and transaction amount.
Keep a record of all the transactions made against the bills with the date of credit and debit.
Have a record of payee details and bills for which payment has been received or made.
Verify all the transactions against the bills.
Conclusion
Tax evasion and the surfacing of black money have become challenging tasks for the government of India. The rise of black money, tax evasion and false cash transactions led to the introduction of Section 269SS and 269T of the Income Tax Act. It is mandatory for both parties, sender and receiver, to demonstrate all the transactions that come under Section 269SS and 269T during their income tax efiling.
