Restrictions on Deposits & Advances

Restrictions on Loans,Deposits & Advances

Restrictions on Deposits & Advances and Cash  loans under the Income Tax Act, which aim to curb the use of black money in financial transactions.

As per the Income Tax Act, any cash loan, deposit, or advance above a certain threshold is prohibited. The threshold for cash transactions is currently set at Rs. 20,000. Any cash transactions above this amount are considered illegal and may result in penalties and fines.

RESTRICTIONS ON CASH LOANS, DEPOSITS & ADVANCES UNDER INCOME TAX

No person shall take or accept from any other person (herein referred to as the depositor), any loan or deposit or any specified sum, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed  if,—

(a) the amount of such loan or deposit or specified sum or the aggregate amount of such loan, deposit and specified sum; or

(b) on the date of taking or accepting such loan or deposit or specified sum, any loan or deposit or specified sum taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), the amount or the aggregate amount remaining unpaid; or

(c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b)

is twenty thousand rupees or more: Provided that the provisions of this section shall not apply to any loan or deposit or specified sum taken or accepted from, or any loan or deposit or specified sum taken or accepted by,—

(a) the Government;

(b) any banking company, post office savings bank or co-operative bank

(c) any corporation established by a Central, State or Provincial Act;

(d) any Government company as defined in clause (45) of section 2 of the Companies Act, 2013 (18 of 2013);

(e) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette:

Provided further that the provisions of this section shall not apply to any loan or deposit or specified sum, where the person from whom the loan or deposit or specified sum is taken or accepted and the person by whom the loan or deposit or specified sum is taken or accepted, are both having agricultural income and neither of them has any income chargeable to tax under this Act.

Explanation.—For the purposes of this section,— (i) “banking company” means a company to which the provisions of the Banking Regulation Act, 1949 (10 of 1949) applies and includes any bank or banking institution referred to in section 51 of that Act;

Analysis on Section 269SS Of the Act:

Legislative Intent

Prohibition against taking or accepting certain loans and deposits in case

Unaccounted cash found in the course of search is often explained as representing loans from or deposits made by various persons.

Unaccounted income is also brought into the books of account in the form of such loans and deposits

With a view to countering this device, which enables taxpayers to explain unaccounted cash or unaccounted deposits, section 269SS was introduced.

The sole object  is to counter the evasion of tax

Object of section 269SS was to curb this menace of making false entries in the account books and later giving an explanation for the same

No person shall accept, from any other person, loan, deposit or any specified sum otherwise than by A/c payee cheque, bank draft or use of ECS through a bank account or through such other electronic mode as may be prescribed, if:

The amount of such loan, deposit or specified sum or the aggregate amount of such loan, deposit and specified sum exceed Rs. 20,000 or more. OR

On the date of accepting such loan, deposit or specified advance, amount remaining unpaid or the aggregate amount remaining unpaid exceed Rs. 20,000 or more. Or

Amount or aggregate of amount referred to in clause (a) together with amount or aggregate of amount in clause (b) exceeds Rs. 20,000 or more.

In recent amendments, Finance (No. 2) Act, 2019 substituted the term ‘bank account with ‘bank account or through such other electronic modes as may be prescribed’.’ These such other electronic modes’ ’are notified by Ministry of Finance as the following:

(a) Credit card

(b) Debit card

(c) Net Banking

(d) IMPS (Immediate Payment Service); (e) UPI (Unified Payment Interface); (f) RTGS (Real Time Gross Settlement);

(e) UPI (Unified Payment Interface);

(f) RTGS (Real Time Gross Settlement);

(e) UPI (Unified Payment Interface);

(f) RTGS (Real Time Gross Settlement);

EXEMPTION FROM SEC 269SS:

This section applies to all the persons i.e. individual, HUF, Company, Partnership firm, AOP/BOI, Local authority, Co-operative society, Trust, AJP.

The provisions of this section are not applicable in cases

1. Where the following persons are either recipient or payer:

i. Government ;

ii. any banking company, post office savings bank or co-operative bank ;

iii. any corporation established by a Central, State or Provincial Act ;

iv. any Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956)

v. such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette : {Notified by F. No.414/104/84-IT (INV)- Housing Development Finance Corporation Limited, Bombay, in respect of its Home Savings Plan Scheme, Loan Linked Deposit Scheme and Certificate of Deposit Scheme, including Cumulative Interest Scheme}

 

 

 

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