India’s New Tax Law – Section 269SS
The Indian Government has taken a number of steps to curb the menace of black money in the country. One such step is through section 269ss of Income tax act which was introduced with effect from 1st April 2017. Paying cash and repaying loans/deposits are dealt with. This section aims to reduce tax evasion by curbing false cash transactions that give birth to unaccounted money thereby increasing tax revenue for the government.
Income Tax Authorities have been conducting raids to uncover cash that is concealed and unaccounted for. Criminals used to get away with stating they got the money from friends or family as a deposit or loan. To illustrate their case, they typically stage fictitious cash transactions to indicate that loans and deposits have been paid and repaid. It is their principal objective to avoid paying any taxes.
Section 269SS of Income Tax Act was established to limit the number of cash transactions that contribute to the buildup of black money in order to stop this trend.
What is 269ss of Income tax act?
According to section 269ss of Income tax act,
- One person cannot accept deposit, loan, or any other specified advance sum of deposit for transfer of immovable property in cash if the amount exceeds 269ss of Income tax act limit of 20,000 INR.
- If the aggregate amount of a loan, deposit or any other specified advance sum of deposit for transfer of immovable property received by a person exceeds 269ss of Income tax act limit of 20,000 INR, the transaction cannot be completed in cash.
- If there are any transactions where the unpaid loan, deposit, or any other specified advance sum of deposit for transfer of immovable property has been given out but not yet paid back and the amount exceeds 269ss of Income tax act limit of 20,000 INR, a monetary transaction is prohibited.
In the specified cases above, the transactions need to be completed by a cheque which is account payee or a bank draft which is account payee, or the use of an electronic clearing system (ECS) through any bank account.
However, the following entities are exempt from the section act limit of 20,000 INR:
- The Government;
- Banking companies under the provisions of the Banking Regulation Act, 1949 (10 of 1949) and any other bank or financial institution referred in Section 51 of the same act;
- Any corporation formed under a Central, State, or Provincial Act;
- Any Government firm as specified in clause (45) of Section 2 of the Companies Act of 2013. (18 of 2013);
- Other institutions, organizations, or bodies that the Central Government may announce in the Official Gazette, reasons to be stated in writing.
Further, the following scenarios are also exempt from the section 269ss of Income tax act limit of 20,000 INR:
- Both parties (depositor and receiver) have only agricultural incomes and both of them do not have income subject to tax;
- Receiving money from friends or family during an emergency;
- Providing cash as capital in a partnership firm.
Note: Section 269ss of Income tax act limit of 20,000 INR applies to any loan, deposit, or other defined advance sum of deposit for transferring of any immovable property, irrespective of whether the real property was actually transferred.
Penalty for failing to comply with Section 269ss of Income tax act
If a person violates section 269ss of Income tax act by taking or accepting a loan or deposit of 20,000 INR or more in cash, he or she will be liable to pay the total amount received by him.
It is a common practice for people to take or accept cash in large amounts, which are unaccounted for. These transactions are often made under the guise of friends and family giving loans or deposits. However, this section makes it illegal to not account for all money received in cash by stating that if someone takes more than 20,000 INR (or its equivalent) in cash; they will be liable to pay back the total amount received by him/her. This is a way to counter secreted cash.
Non-monetary book advance entries are not covered by Section 269ss of Income tax act
(CIT v Noida Toll Bridge Co. Ltd 262 ITR 260)
Section 269ss of Income Tax Act is not applicable in cases where only a book-entry has been made. This means that there needs to be an actual transfer of cash money for the section to apply. Merely on the basis of book entries, it cannot come into effect because even though there might be a liability, it is not arisen by virtue of any transaction.
Money traded between Partners and a Partnership firm does not violate Section 269ss of Income tax act
(CIT New Delhi v Muthoot Financiers ) (2015) (Delhi- High Court)
The application of Section 269SS greatly revolved around the reason for accepting cash and the intention behind it. Even though partners and partnership firms are two different entities in the eyes of the law, the transfer of cash between the parties does not breach section 269SS.
Partners are the owners of the partnership firm. It is normal for them to make necessary cash transfers of more than 20,000 INR to their firm as a deposit or loan to keep it running. These transactions are done through the capital account and include paying for new assets, paying off debts, and such. Though the general state of affairs is one financial entity receiving cash money of more than 20,000 INR from another, the section is not breached.
Also, it is irrelevant if the transfer of cash is done through a current or savings account. Section 269SS of Income Tax Act is not violated unless there is a clear motive for avoiding tax payment.
To stop the trend of black money, Section 269SS was established by Income Tax Authorities. The section requires that cash payments in respect of deposit, loan, or any other specified advance sum of deposit for transfer of immovable property are limited to no more than 20,000 INR. Previously, there were many instances where people used to get away with secreted, unaccounted money stating the amount was a deposit or loan from his or her friends or family. Section 269SS is a preventive measure against evasion of tax and generation of black money. In case of violation against the act, the person is required to pay the entire amount back to the government.