Section 269SS and Section 269T

Sections 269SS and 269T are among the most potent anti-cash provisions in the Income Tax Act and are routinely invoked during scrutiny assessments, survey operations, and search and seizure proceedings. Section 269SS prohibits any person from accepting a loan, deposit, or any sum of money specified in an agreement from any other person otherwise than through an account payee cheque, account payee bank draft, or electronic clearing system, if the amount is ₹20,000 or more. The same prohibition applies if the aggregate of existing loans or deposits from the same person, combined with the fresh amount, equals or exceeds ₹20,000.

Section 269T is the mirror provision governing repayment. It mandates that repayment of any loan, deposit, or specified advance of ₹20,000 or more must be made through account payee instruments or ECS. The penalty under Section 271D (for violation of 269SS) and Section 271E (for violation of 269T) is 100% of the amount accepted or repaid in cash — making these among the harshest penalties in the direct tax code.

The term "specified sum" in these sections, inserted by the Finance Act 2015, was intended to cover advance payments made in real estate transactions, a sector historically known for high levels of cash dealings. This expansion significantly broadened the scope of 269SS beyond traditional banker-customer relationships.

There are limited exceptions to these provisions. Transactions with certain entities — the Central Government, State Governments, banking companies, co-operative banks, post offices, and government corporations — are exempt. Additionally, where the assessee can demonstrate that the acceptance or repayment in cash was due to genuine hardship and there was no intention to evade tax, the Assessing Officer has discretion to waive the penalty under Section 273B if the assessee proves reasonable cause.

In practice, real estate agents, small private lenders, and closely held family companies are the most frequent targets of notices under these sections. Loans between relatives or between group companies that bypass banking channels — even when commercially genuine — have been penalised when the ₹20,000 cash threshold was breached. Given the severity of the 100% penalty, any cash-based lending arrangement, even temporary inter-company funding, must be carefully structured through banking channels.