Sections 269ss 269t Of The Income Tax

Sections 269SS and 269T are two Income Tax Act provisions regulating cash transactions between two parties. The main objective of these sections is to curb tax evasion and black money generation by restricting the use of cash in certain transactions.

Section 269SS of the Income Tax Act prohibits any individual from accepting any deposits, loans, or advances exceeding ₹20,000 from another person in cash. On the other hand, Section 269T prohibits any person from repaying any advances or loans in cash.

The rule outlines that the transaction must be through a specified mode, such as a cheque, demand draft, electronic transfer, etc. This section applies to all types of transactions, whether business or personal and whether it is with or without interest.

Loans: Any sum of money borrowed by one person from another person for any purpose, whether with or without interest, security or documentation.

Deposits: Any sum of money received by one person from another person for safekeeping, investment, or earning interest, whether with or without a contract or agreement.

Advances: Any sum of money paid by one person to another person as a part of a contract or agreement for the sale, purchase, or supply of goods or services – with or without interest, security or documentation.

Other specified sums: Any other sum of money received or repaid by one person from or to another person for any reason, such as gift, donation, settlement, etc.

Here is an example to help you better understand the concepts of 269SS and 269T of the Income Tax Act:

• If you lend ₹25,000 to your friend in cash, it is a loan covered under Section 269SS.

• If you repay ₹30,000 to your friend in cash, it is a repayment of the loan covered under Section 269T.

• If you pay ₹50,000 in cash as an advance for buying a car, then it is an advance covered under Section 269SS.

• If you receive ₹40,000 in cash as a gift from your relative, it is a specified sum covered under Section 269SS of the Income Tax Act.

Specified Sum

It highlights any sum of money equal to or exceeding ₹20,000. This limit applies to each transaction, not the aggregate amount of transactions in a day or year.

However, if the transactions are related or interconnected, they will be treated as a single transaction and the limit will apply accordingly.

Specified Mode

• It highlights any mode of payment other than cash, such as cheque, draft, or electronic transfer. According to this term:

• The mode of payment must be crossed and account payee only.

• The payment must be made from or to a bank account of the payer or payee.

• The payment must be made on or before the date of the transaction.

• The payment must be duly recorded and reported in the books of accounts and tax returns of the payer and payee.

Sections 269T and 269SS of the Income Tax Act do not apply to all transactions and entities. Some of these exemptions are as follows:

• Any transaction between the Central or State Government or any corporation or authority established by them is exempted from these sections.

• Any transaction between a banking company, a cooperative bank, a post office savings bank account, or a non-banking financial company is exempted from these sections.

• Any transaction between any other entity or person the Central Government notifies in the Official Gazette is exempted from these sections.

• For instance, the transactions between the Reserve Bank of India (RBI), the National Housing Bank, and the Life Insurance Corporation of India (LIC) are exempt.

• Any transaction that falls under any of the following situations is exempted from these sections:

• The transaction is made by or to a broker, agent or acting on behalf of another person who must disclose the principal's name and address in his books of accounts and tax returns.

• The transaction is made by or to a person not a resident of India and is regulated by Chapter IX of the Income Tax Act (Double Taxation Relief) provisions.

• The transaction is made by or to a person suffering from any disability or disease that prevents him from operating a bank account and who has obtained a certificate from a medical authority in this regard.

• The transaction is made by or to a person residing in a notified area where the banking facilities are not available and who has obtained a certificate from the District Magistrate in this regard.

For example,

• Receiving ₹30,000 in cash from the State Government as a subsidy is an exempted transaction under Section 269SS.

• If you repay ₹40,000 in cash to a co-operative bank as a loan, it is an exempted transaction under Section 269T.

• If you pay ₹50,000 in cash to a person who is a non-resident and who has a tax treaty with India, it is an exempted transaction under Section 269SS.

• If you receive ₹60,000 in cash from a person who is disabled and who has a medical certificate, it is an exempted transaction under Section 269SS.

Penalty under Section 271D

If you accept any loan, deposit, or advance in cash in violation of Section 269SS, you will be accountable for paying a penalty equal to the transaction amount.

The Joint Commissioner of Income Tax imposes this penalty after allowing you to be heard. The penalty is applied over the tax liability on the transaction, if any.

Penalty under Section 271E

If you repay any loan, deposit or advance in cash in violation of Section 269T, you will be liable to pay a penalty equal to the transaction amount. The Joint Commissioner of Income Tax imposes this penalty after allowing you to be heard. The penalty is separate from any tax liability associated with the transaction.

Prosecution under Section 276E

If you fail to pay the penalty under Section 271D or Section 271E within the prescribed time, you will face prosecution under Section 276E. This can result in imprisonment for a term ranging from three months to two years and a fine ranging from 10% to 100% of the transaction amount.

With the government pushing for a digital India, there are numerous online choices for repaying your loan or accepting funds from a friend or relative.

If you are dealing in cash transactions to decrease your taxable income, it is preferable to buy health insurance online and claim a deduction under section 80D. A health insurance plan not only provides tax benefits but also assists you during a medical emergency by paying for medication bills, consultation fees, OPD, and other expenses.

The best part about buying medical insurance from Tata AIG is that even if you have a chronic ailment, you may still purchase pre-existing disease health insurance.