Section 271D of Income-tax Act, 1961: Penalty for Violation of Section 269SS
Section 271D deals with the penalty for taking or accepting certain loans, deposits or specified sums in contravention of Section 269SS. Understand the Rs. 20,000 threshold, aggregation rules, exemptions, penalty calculation and reasonable-cause defence.
What is Section 271D?
Under Section 271D(1), a person who takes or accepts a loan, deposit or specified sum contrary to Section 269SS is liable to a penalty equal to the amount so taken or accepted. The original text provided that the Joint Commissioner imposes the penalty; the competent authority and procedural rules must be checked against amendments applicable to the particular proceedings.
Section 269SS is the underlying restriction on acceptance of certain amounts otherwise than through prescribed banking or electronic modes. Specified sum includes money receivable, whether as an advance or otherwise, in relation to transfer of immovable property, whether or not the transfer ultimately takes place.
Section 269SS: Rs. 20,000 rule and aggregation
Subject to the statutory exceptions, Section 269SS restricts taking or accepting a loan, deposit or specified sum otherwise than by permitted modes if any of these tests reaches Rs. 20,000 or more:
- The amount of the loan, deposit or specified sum being accepted is Rs. 20,000 or more.
- The aggregate of earlier unpaid loans, deposits or specified sums from the same person is Rs. 20,000 or more.
- The new amount plus the relevant earlier unpaid amount from the same person totals Rs. 20,000 or more.
Permitted modes include account-payee cheque, account-payee bank draft, electronic clearing system through a bank account and other prescribed electronic modes, subject to the law applicable at the time.
Important statutory exceptions
- Transactions involving specified government, banking and other institutions expressly covered by Section 269SS.
- Cases where both parties have agricultural income and neither has income chargeable to income tax, subject to the statutory conditions.
- Other persons or classes of persons notified under the provision, if applicable.
These are fact-sensitive exceptions, not a general exemption for relatives, business emergencies or transactions entered in books of account.
How is the Section 271D penalty calculated?
| Illustration | Potential Section 269SS issue | Indicative Section 271D penalty |
|---|---|---|
| Cash loan of Rs. 50,000 accepted from one person | Threshold exceeded, assuming no exception applies | Rs. 50,000 |
| Existing unpaid loan of Rs. 15,000; further cash loan of Rs. 10,000 from same person | Aggregate becomes Rs. 25,000 | Rs. 10,000 for the new contravening acceptance, subject to facts |
| Cash advance of Rs. 2,00,000 for proposed property purchase | Specified sum in relation to immovable property | Rs. 2,00,000, assuming no exception or relief |
Examples illustrate the 1961 Act rules and are not a determination of liability. Actual penalty depends on the date, transactions, exemptions and evidence.
Reasonable-cause protection under Section 273B
Section 273B provides that no penalty under Section 271D shall be imposable if the person proves that there was reasonable cause for the failure. The burden is on the person relying on the defence. Relevant evidence may include contemporaneous records showing genuine urgency, practical banking constraints and the commercial circumstances, but genuineness of the transaction alone does not automatically establish reasonable cause.
The taxpayer should preserve bank records, agreements, ledger entries, correspondence and explanations of the circumstances. The penalty process must also satisfy the applicable opportunity-of-hearing and limitation requirements, including relevant provisions of Sections 274 and 275 for proceedings under the 1961 Act.
Section 271D compared with Sections 271DA and 271E
| Provision | Type of contravention |
|---|---|
| Section 271D with Section 269SS | Taking or accepting specified loans, deposits or property-related sums in prohibited modes |
| Section 271E with Section 269T | Repayment of specified loans, deposits or advances contrary to prescribed modes |
| Section 271DA with Section 269ST | Receipt of Rs. 2 lakh or more in prohibited cash-receipt circumstances, subject to exceptions |
Different restrictions can require separate analysis; one threshold should not be substituted for another.
Section 271D: statutory provision and legislative history
The following preserves the substance and amendment history of the uploaded article, with editorial footnote markers removed from the operative wording.
Sub-section (1): If a person takes or accepts any loan or deposit or specified sum in contravention of the provisions of section 269SS, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit or specified sum so taken or accepted.
Sub-section (2): Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner.
Original legislative amendment notes
- Act 21 of 1998, section 3 substituted "Joint Commissioner" for "Deputy Commissioner" with effect from 1 October 1998.
- Section 271D was renumbered as sub-section (1) by Act 12 of 1990, section 45 with effect from 1 April 1990.
- Act 20 of 2015, section 71 inserted the reference to "specified sum" with effect from 1 June 2015.
- Sub-section (2) was inserted by Act 12 of 1990, section 45 with effect from 1 April 1990.
Later amendment caution: Legislative changes concerning the authority imposing penalty and the 2025 Act transition may affect proceedings. Consult the official amended text for the relevant date before relying on the historic quotation.
Official legislation and guidance
- Income Tax Department: Income-tax Act, 1961
- Income Tax Department: e-Filing portal and guidance
- India Code: Central legislation and amendments
- Income Tax Department: notifications, circulars and updates
Frequently asked questions
What is the penalty under Section 271D?
For a contravention of Section 269SS governed by the Income-tax Act, 1961, the penalty is generally equal to the loan, deposit or specified sum accepted in breach of the rule.
Does Section 269SS prohibit every cash loan?
No. It applies subject to its statutory Rs. 20,000 thresholds, aggregation rules and exemptions. The nature of the payer, recipient and transaction matters.
Can a penalty be avoided for reasonable cause?
Section 273B provides that penalty under Section 271D is not imposable where the person proves reasonable cause for the failure.
Does Section 271D apply to property advances?
Section 269SS includes a specified sum receivable in relation to transfer of immovable property, whether or not the transfer ultimately takes place, subject to the applicable statutory conditions.
This article provides general legal information, not advice for a specific transaction. Verify the operative text and transitional rules for the relevant year.