In a significant reminder to taxpayers regarding the strict provisions of the Income Tax Act, 1961, it has been highlighted that cash transactions involving loans or advances between friends, relatives, or other entities can invite severe financial penalties. The legal framework aims to curb the circulation of black money and untraceable cash transactions by mandating the use of banking channels for amounts exceeding a specified limit.
Legal Provisions on Cash Transactions
The controversy centers on the widespread practice of lending money in cash to acquaintances. Contrary to popular belief, such transactions are heavily regulated under the Income Tax Act.
Section 269SS (Prohibition on Accepting Cash Loans):
According to the statutory provisions of Section 269SS of the Income Tax Act, no person is permitted to take or accept from any other person any loan, deposit, or specified sum in cash if the amount is ₹20,000 or more. This restriction applies universally, regardless of the relationship between the parties—whether they are friends, relatives, or business associates.
Section 269T (Prohibition on Repaying Cash Loans):
The restrictions are not limited to the granting of loans. As highlighted in the visual data, repaying a loan in cash is also a violation. Section 269T mandates that no person shall repay any loan or deposit in cash if the amount equals or exceeds ₹20,000.
The Consequence: 100% Penalty
The stringent nature of these rules is reflected in the penalties prescribed for non-compliance.
• Section 271D: If a person violates Section 269SS by accepting a cash loan of ₹20,000 or more, they are liable to pay a penalty equal to the amount of the loan taken.
• Section 271E: Similarly, contravention of Section 269T during the repayment of a loan attracts a penalty equal to the amount of the loan repaid.
Illustration of the Law:
To clarify the implication of these sections, consider the following example cited in the source material: If an individual provides a cash loan of ₹50,000 to a friend, and this transaction is proven, the Income Tax Department can levy a fine of ₹50,000—effectively a 100% penalty on the transaction amount.
Mandated Modes of Transaction
To avoid legal complications and financial liability, the law mandates that any loan or repayment exceeding the ₹20,000 threshold must be executed through specific banking channels. The recognized “safer options” include:
• Account Payee Cheque
• Account Payee Bank Draft
• Electronic Clearing System (ECS)
• Digital Payment Modes: UPI, NEFT, RTGS, and IMPS.
Legislative Intent
The primary objective behind the rigorous enforcement of Section 269SS and Section 269T is to curb the generation and circulation of Black Money within the economy. By compelling individuals to use traceable banking channels for significant financial exchanges, the government aims to ensure transparency and prevent tax evasion.
