Section 271E: Penalty for Repayment in Violation of Section 269T

Section 271E at a glance

Meaning and statutory provision of Section 271E

Section 271E(1) provides that a person who repays any loan, deposit or specified advance referred to in Section 269T otherwise than in accordance with that section is liable to a penalty equal to the amount so repaid. It is the repayment in an impermissible mode, not the mere existence of the loan or deposit, that is central to this provision.

Section 271E(2) addresses the authority competent to impose the penalty. The original webpage refers to the Joint Commissioner, but the Finance Act, 2025 inserted a proviso under which penalties imposed on or after 1 April 2025 are imposed by the Assessing Officer. The date and governing procedure should therefore be checked before describing the competent authority.

See the Income Tax Department's Section 271E text and the 1961 Act as amended by Finance Act, 2025.

Section 269T: How must loans and deposits be repaid?

Section 269T restricts repayment of covered loans, deposits and specified advances when any of the statutory tests reaches the threshold. Permitted methods generally include an account-payee cheque, account-payee bank draft, electronic clearing through a bank account or another prescribed electronic mode. Ordinary cash repayment is not a permitted method when Section 269T applies.

When does the Rs. 20,000 limit apply?

1. The loan, deposit or specified advance together with any payable interest is Rs. 20,000 or more.
2. The aggregate of loans or deposits held by the payee in the relevant names, together with applicable interest, is Rs. 20,000 or more.
3. The aggregate of specified advances received from the payee in the relevant names, together with applicable interest, is Rs. 20,000 or more.

These are alternative tests. Splitting one repayment into smaller cash instalments does not necessarily avoid the restriction because outstanding balances and aggregation matter.

Special threshold: for specified transactions between a primary agricultural credit society or a primary co-operative agricultural and rural development bank and its member, the threshold is increased to Rs. 2 lakh under the relevant proviso. Check whether the statutory category and transaction conditions are actually met.

Important definitions

Loan and deposit

Loans and deposits covered by Section 269T include amounts repayable by persons to whom the statutory provision applies. The repayment restrictions must be assessed using the nature of the transaction, relevant balances and applicable exceptions.

Specified advance

A specified advance means money in the nature of an advance, by whatever name called, relating to the transfer of immovable property, whether or not the transfer ultimately takes place. Accordingly, returning a property booking amount or sale advance may trigger Section 269T where the statutory conditions are satisfied.

Prescribed electronic modes

Permitted modes include electronic clearing through a bank account and prescribed digital payment methods. Maintain banking records establishing the method, payer, recipient and transaction date. The permitted-mode rules should be checked against the law applicable on the repayment date.

Exceptions to the repayment restriction

Section 269T contains specified exceptions, including repayments of loans, deposits or specified advances taken or accepted from the Government; banking companies, post-office savings banks and co-operative banks; corporations established by Central, State or Provincial legislation; government companies; and other notified institutions or classes. The exact statutory wording and notifications control eligibility. A general assertion that the payee is a government-related body is not enough.

Consult the official Section 269T text and the Income Tax Department's guide to modes of receipts and payments.

Illustrative examples of Section 271E penalty

Reasonable cause under Section 273B

Under Section 273B, a penalty under Section 271E is not imposable where the person proves reasonable cause for the failure. The defence is fact-specific and requires credible evidence. Financial convenience or lack of awareness does not automatically establish reasonable cause.

Preserve loan agreements, repayment receipts, bank statements, correspondence, proof of exceptional circumstances and a clear chronology. If a penalty notice is received, check the relevant law, limitation, authority, procedural opportunity and available appeal rights.

Difference between Sections 271D, 271DA and 271E

Each rule has different conditions. The Rs. 2 lakh restriction under Section 269ST should not be confused with the general Rs. 20,000 threshold under Section 269T.

Income-tax Act, 2025: Position from 1 April 2026

The Income-tax Act, 2025 took effect on 1 April 2026, subject to its commencement and transition provisions. The corresponding provisions are Section 188, governing the mode of repayment of certain loans, deposits and specified advances, and Section 453, dealing with the related penalty. The provisions and amendments applicable to the transaction date should be checked in the enacted text.

Section 271E remains important for historical transactions and proceedings governed by the 1961 Act. Do not assume that the old section number governs a repayment made under the new Act.

Read the Income-tax Act, 2025 as amended by the Finance Act, 2026 (official PDF).

Legislative history and original amendment notes

Section 271E was introduced to enforce the statutory restrictions on repayment of deposits. Its scope was subsequently extended to loans and specified advances. The source article recorded the following amendments, preserved here for reference:

1. Section 271E was renumbered as sub-section (1) by Act 12 of 1990, section 46, effective 1 April 1990.
2. Act 32 of 2003, section 95, substituted the reference to loans and deposits for the earlier deposit-only language, effective 1 June 2003.
3. Act 20 of 2015, section 72, added specified advances, effective 1 June 2015.
4. Sub-section (2) was inserted by Act 12 of 1990, section 46, effective 1 April 1990.

Additionally, the Finance Act, 2025 changed the penalty-imposing authority for orders on or after 1 April 2025.

Frequently asked questions

What is the penalty for repaying a loan in cash?

Where Section 269T is contravened, Section 271E provides for a penalty equal to the covered loan, deposit or specified advance repaid, subject to statutory relief.

Is every cash repayment below Rs. 20,000 allowed?

No. The outstanding and aggregate amount tests, including interest, can bring a smaller individual repayment within Section 269T.

Does Section 269T apply to refunding a property advance?

Yes, a qualifying specified advance relating to transfer of immovable property is covered even if the proposed transfer does not take place.

Can a Section 271E penalty be avoided for reasonable cause?

Section 273B provides relief where reasonable cause is proved, subject to the facts and evidence.

Official legislation and guidance

• Income Tax Department: Section 271E
• Income Tax Department: Section 269T
• Income Tax Department: Modes of receipts and payments
• Income-tax Act, 1961 as amended by Finance Act, 2025
• Income-tax Act, 2025 as amended by Finance Act, 2026