Last updated: March 30th, 2020 12:21 PM

Section 271D of Income Tax Act

Section 271D of the Income Tax Act lays down the penalty to be imposed on a taxpayer for accepting or taking any loans, deposits or other specified amounts in contravention of Section 269SS. Under Section 269SS, all loans or deposits of over Rs.20,000 must be taken through banking channels. In this article, we look at the provisions of Section 271D of the Income Tax Act in detail.

Section 271D of Income Tax

Section 271D of the Income Tax Act is reproduced below for reference:

271D. (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.
(2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner.

In the above lines, "specified sum" refers to any sum of money receivable, whether as advance or otherwise, in relation to the transfer of immovable property, whether or not the transfer takes place.

Section 269SS

Section 269SS specifies the rules pertaining to the acceptance of loans, deposits and specified sum. It states that an assessee is restricted from taking or accepting the specified transactions other than by means of an account payee cheque, account payee bank draft or electronic clearing system on the event of the following conditions:

• The amount of loan, deposit or specified sum exceeds a sum of Rs.20,000.
• Loans, deposits or specified sum availed or accepted earlier haven’t been settled.
• The amount or its aggregate specified in the first clause together with the amount or its aggregate specified in the second clause constitutes a sum of Rs. 20,000 or more.

The provisions of this section would not be applicable to:

• The Government
• Any banking company, post office savings bank or co-operative bank
• Establishments of a Central, State or Provincial Act.
• Any Government entity.
• Any notified institution, association or body or the class of institutions mentioned under the Act.

Further, this section is not valid if the persons involved in such transactions are receiving agricultural income and neither of them is taxable under the Act.

Amount of Penalty

For defaults under Section 271B, an assessee will be penalized with an amount which is equal to the loan or deposits are taken or accepted.

Limitation of Penalty Proceedings

The Supreme Court has updated that the provisions of section 271-D and 271-E of the Income Tax Act cannot be invoked after a specified limitation period. The period of limitation under this section would be the end of the financial year in which the proceedings for penalty under this section has drawn to a closure; or six months from the end of the month in which the procedures of penalty have been initiated, whichever period expires later. The limitation period will not be dependent on the status of appeal against the assessment or other orders specified in Section 275(1)(a) of the Act.