INTRODUCTION TO SECTIONS 269SS AND 269T

In a notice released on March 9, 2017, the RBI pronounced that sections 269SS and 269T will be pertinent to NBFCs. These specifications, therefore, add to the list of NBFC Annual compliances in India. Before we dig into what this implies for these organizations, let’s take a brief look at what these sections specify. The sections 269SS and 269T were enacted by RBI because the income-tax department discovered huge sums of unaccounted cash money in their raids. When investigated, the accused would state that they received cash as a loan from friends or relatives. Numerous individuals with the aim of tax evasion also falsified cash transactions showing payment and repayment of loans. Hence, with the goal of checking cash transactions and the accumulation of black money, these acts were put into action. 

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SECTION 269SS

Section 269SS basically states that no individual can take a CASH loan or deposit from another person if the amount is more than Rs. 20,000.

SECTION 269T

In general terms, Section 269T is for not repaying a loan in cash if the amount is more than Rs.20,000. Both the laws together imply that neither payment nor repayment of loans can be done in cash if the loan amount goes beyond Rs.20,000. Nonetheless few exceptions are considered but we won’t look into those for this article.

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SECTIONS 269SS AND 269T FOR NBFCs

In the notice released by RBI, they drew attention to the guidelines in paragraph 37 (iii) b of the Non-Banking Financial Company – Non-systemically Important Non-Deposit taking Company (Reserve Bank) Directions, 2016 Non-Banking Financial Company – Systemically Important Non-Deposit taking Company and Deposit-taking Company (Reserve Bank) Directions, 2016 which stipulate that high-value gold loans (₹ 1 lakh and above) can only be disbursed by cheque. The RBI further added to this by releasing this statement in this notification: “On review, and in line with the rules issued under Section 269SS and 269T of the Income Tax Act, 1961, the requirements under the Income Tax Act, 1961, as amended from time to time, would be applicable to all NBFCs with immediate effect. Presently, the applicable threshold under the Income Tax Act, 1961 is Rupees Twenty thousand.” Hence, in replace of new regulation, the RBI has deleted paragraph 37(iii) b of the master directions. RBI incorporated the new provisions in paragraphs 104 and 117.

This basically means that NBFCs cannot disburse more than ₹20,000 in cash against gold loans. NBFCs will have to do the clearance via cheques.

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