Income Tax Section 269SS (New Sction 185)-Mode of Taking or Accepting Certain Loans, Deposits and Specified Sum
📜 Section 185 — Mode of Taking or Accepting Certain Loans, Deposits and Specified Sum
📌 Core Rule
Under Section 185, no person shall take or accept from another person a loan, deposit, or specified sum in cash if:
The amount or aggregate amount of such loan, deposit or specified sum; or
The existing amount outstanding from that person (i.e., any previously taken/accepted loan, deposit or specified sum that has not yet been paid back), or
The total of both the above,
is ₹20,000 or more on the date of taking/accepting it —
unless the amount is received by one of the specified modes:
Account payee cheque,
Account payee bank draft,
Electronic Clearing System (ECS) through a bank account,
Other prescribed electronic modes (like UPI, RTGS, NEFT, etc.).
In simple terms — if you receive loans or deposits from a person and the total cash you get from them reaches ₹20,000 or more, you cannot accept it in cash. It must go through a traceable banking or electronic mode.
🧾 Who Does It Apply To?
Every person — including individuals, firms, companies, associations — regardless of whether they carry on business/profession.
It is a traceability and anti-evasion measure.
📌 Definitions
Loan, deposit, or specified sum includes:
Any amount of money borrowed or deposited.
“Specified sum” typically includes advances for property purchases and similar payments that are not strictly loans or deposits but represent money received in advance.
🧾 Exceptions
Section 185 does not apply if both parties:
Only have agricultural income, and
Neither has income chargeable to tax under the Act.
Also, there are usually statutory exceptions for some institutions (Government, banks, corporations, notified entities), similar to older cash transaction restrictions, but the core threshold and restrictions remain the same.
💡 Practical Example
📌 Scenario — Accepting Loans
Mr. A accepts a cash loan of ₹15,000 from Mr. B on 1 Jan.
Mr. A still has ₹5,000 outstanding from Mr. B from an earlier cash loan taken on a previous date.
Now, on 1 Jan, the aggregate amount from Mr. B becomes:
₹15,000 (new cash loan) + ₹5,000 (outstanding) = ₹20,000.
Since the total is now ₹20,000 or more, Mr. A cannot legally accept this in cash — he must receive it through an account-payee cheque, bank transfer, or other specified mode. Accepting it in cash violates Section 185.
📌 What If Mr. A Receives ₹12,000 and ₹7,000 From the Same Person on the Same Day?
If both transactions are cash and occur on the same day from the same person then:
₹12,000 + ₹7,000 = ₹19,000 total, which is below ₹20,000.
This does not violate Section 185 as long as the combined total (considering past unpaid amounts too) stays below ₹20,000.
📌 Separating Transactions Won’t Help
If the combined total from the same person reaches ₹20,000 or more even through multiple dealings, all such acceptance must be by non-cash modes. Simply splitting into different days won’t avoid the rule if the aggregate on a given date meets the threshold.
⚖️ Purpose of Section 185
The main reason Section 185 exists is to:
Prevent tax evasion by discouraging untraceable cash loans or deposits, and
Promote payments through traceable banking and electronic systems.
⚠️ Penalty
While Section 185 itself sets the rule, the penalty for contravention is typically provided in the penalty provisions of the Act (e.g., Section 450) which generally imposes a penalty equal to the amount of loan/deposit/specifed sum taken or accepted in violation — effectively a monetary penalty equal to the cash amount received in breach of the rule.
(This penalty principle is aligned with how similar cash restriction sections worked in the old law.)
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