Finance is the bloodline of any business. Without finance it is impossible to run a business, as the individual’s own capital may not always be sufficient to finance the business. Hence, there is the need for capital to run a successful business. The most common way known to gain capital is either taking loans and accepting deposits. But one should keep in mind the laws levied upon the individual when accepting loans or deposits. After, demonetization it was quite clear that our government was taking steps to achieve a cashless and digital economy and the efforts made by government are being reflected in new provisions.
To minimize the rising tax evasion, increase in black money and to significantly reduce the false accounts given for unaccounted money, the government has introduced this section.
Mode of taking or accepting certain loans, deposits and specified sum.
No individual should take or accept from any other individual (herein referred to as the creditor), 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, if:
Provisions of this section does not apply to any loan/deposit or any sum taken or accepted from:
It is further mentioned that the provisions under this section are not applicable to the individual providing/giving any loan/deposit or specified sum of money, and the person accepting or taking the loan/ deposit or specified sum of money, both are having agricultural incomes and neither of them has any tax chargeable income under the Income Tax Act.
Section 271D of Income Tax Act 1961 specifies that if a loan or deposit is acknowledged in breach of the provisions of section 269SS then a penalty corresponding to the amount of such loan or deposit, so taken or accepted, may be levied by the Joint commissioner.
As more and more awareness spread, special attention was given to curb the generation and circulation of black money. To help and strengthen the government’s motive new section 269ST was introduced to increase transparency, reduce cash transactions and fraudulent manipulation for tax evasion.
It was launched 1ST April’2017 by the Income Tax Department, for violation of the same different penalties will be faced by the individual.
All the companies and professionals must make changes accordingly in their system to keep an eye on all cash transaction to avoid penalty and prosecution under this provision.
Section 269T of Income Tax Act specifies that any branch of a banking company or a cooperative society, firm or other person shall not pay any loan or deposit otherwise than by an account payee cheque or account payee bank draft drawn in the name of the individual, who has made the loan or deposit, if:
For example: if Rahul is having loan of Rs 30000 outstanding to Yashika. Then Rahul cannot repay such loan in cash to Yashika.
The following entities/individuals are exempted from the section 269T:
Section 271E of Income Tax Act 1961 specifies that if a loan or deposit is refunded in contravention of the provisions of section 269T then a penalty corresponding to the sum of such loan or deposit repaid may be charged by the Joint commissioner.
Hence, everyone must properly manage their accounts and at the same time smartly save their taxes. For all your tax planning and saving needs consult the experts at H&R Block India.