Payment of unsecured loan.

This query is : Resolved

Rahul Prasad (Querist)
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03 September 2014 Dear Sir,
can be made payment of unsecured loan in cash only. it is supposed to pay less than 20000 cash every installment.
will it be permissible?

Rahul Prasad

Rahul Prasad (Querist)
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04 September 2014 Plz Clear it ...........

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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09 August 2024 Under the current regulations in India, particularly those related to the Income Tax Act and the Prevention of Money Laundering Act (PMLA), the payment of unsecured loans in cash is subject to specific restrictions. Here's a detailed overview:

### **Regulatory Guidelines on Cash Payments**

1. **Income Tax Act, 1961:**
- **Section 269SS:** Under this section, any repayment or receipt of a loan amount of ₹20,000 or more must be done through an account payee cheque, bank draft, or electronic means (such as NEFT/RTGS). Cash payments are not permissible if the amount is ₹20,000 or more. This is designed to prevent tax evasion and ensure proper documentation of financial transactions.

- **Section 269T:** Similar to Section 269SS, this section prohibits the repayment of loans of ₹20,000 or more in cash. Payments exceeding ₹20,000 must be made through banking channels.

2. **Prevention of Money Laundering Act (PMLA):**
- The PMLA mandates that large transactions should be recorded and reported to prevent money laundering activities. Cash transactions above a certain threshold are scrutinized to ensure transparency and legal compliance.

### **Implications for Your Case**

- **Cash Payments Below ₹20,000:** If the unsecured loan payment is less than ₹20,000 per installment, it is technically permissible under the Income Tax Act. However, regular cash transactions of this nature should still be documented properly to avoid any legal complications.

- **Documentation and Reporting:** Ensure that all transactions are well-documented. Maintain proper records of the amounts paid, the dates of payments, and the purpose of the payments. This helps in case of future audits or inquiries by tax authorities.

- **Banking Channel Recommendation:** Despite the legal allowance for payments below ₹20,000 in cash, it is highly recommended to use banking channels for all financial transactions. This not only provides a clear audit trail but also aligns with best practices for financial management and compliance.

### **Conclusion**

While it is legally permissible to make payments of less than ₹20,000 in cash, it is advisable to use banking channels to ensure compliance with all financial regulations and avoid potential issues with tax authorities. Regularly making payments in cash can lead to complications and misunderstandings, so maintaining transparency through banking transactions is generally preferred.

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