Section 185: mode of taking or accepting certain loans, deposits and specified sums

Introduction

This rule applies when a person takes or accepts a loan, deposit or specified sum. Its test is not limited to the new payment: earlier unpaid amounts from the same person count as well. The permitted mode and threshold must therefore be checked before accepting the money.

The Act separately names exempt parties, a narrow agricultural-income exception and a higher threshold for specified member transactions with primary agricultural credit societies and rural development banks. Check those conditions before treating a receipt as outside the restriction.

Key takeaways

The core restriction

No person shall take or accept from another person any loan or deposit or specified sum, except through an account payee cheque, an account payee bank draft, electronic clearing system (ECS) through a bank account, or any other prescribed electronic mode, if:

• the amount or aggregate amount of such loan, deposit or specified sum; or
• the amount or aggregate amount of any previously taken/accepted loan, deposit or specified sum from that same person which remains unpaid (whether due for repayment or not), as on the date of taking/accepting the new amount; or
• the aggregate of both of the above, is ₹20,000 or more.

Who is exempt from this restriction

The restriction does not apply to loans, deposits or specified sums taken or accepted from or by:

• the Government;
• any banking company, post office savings bank, or co-operative bank;
• any corporation established by a Central, State or Provincial Act;
• any Government company as defined under Section 2(45) of the Companies Act, 2013;
• any institution, association, or body (or class of them) notified by the Central Government.

Agricultural income exception

The restriction also does not apply to a loan, deposit or specified sum where both the person taking/accepting it and the person from whom it is taken/accepted have agricultural income and neither has any income chargeable to tax under the Act.

Higher ₹2,00,000 threshold for agricultural credit societies

The ₹20,000 threshold is replaced by ₹2,00,000 where a deposit is accepted by a primary agricultural credit society or a primary co-operative agricultural and rural development bank from its member, or a loan is taken from such a society/bank by its member.

Definition

"Loan or deposit" means loan or deposit of money.

Step-by-step flow for applying Section 185

1. 1

   Is the amount a loan or deposit of money, or a specified sum?

   Loan or deposit means a loan or deposit of money (Section 185(5)). A specified sum is money receivable in relation to transfer of immovable property, as defined in Section 189.

   • No: Section 185 does not apply.
   • Yes: Go to the next step.
2. 2

   Is an exception available?

   Section 185(2): taken from or by the Government, a banking company, post office savings bank, co-operative bank, a statutory corporation, a Government company, or a notified body. Section 185(3): both parties have agricultural income and neither has income chargeable to tax.

   • Yes: Section 185(1) does not apply.
   • No: Go to the next step.
3. 3

   Which threshold applies?

   ₹20,000 in general; ₹2,00,000 for a deposit accepted by, or a loan taken from, a primary agricultural credit society or primary co-operative agricultural and rural development bank by its member (Section 185(4)).

4. 4

   Does the new amount, the unpaid earlier amount, or both together reach the threshold?

   Count any earlier loan, deposit or specified sum from the same person that is still unpaid on the date, whether due or not.

   • Below the threshold: Section 185(1) does not restrict the mode.
   • Threshold or more: Take it only by account payee cheque, account payee bank draft, ECS through a bank account, or another prescribed electronic mode.

Practical checklist

Glossary

Loan or deposit

For Section 185, a loan or deposit of money.

Specified sum

Money receivable, as advance or otherwise, in relation to transfer of immovable property, whether or not the transfer takes place (Section 189).

Account payee cheque

One of the permitted modes; others are an account payee bank draft, ECS through a bank account, or a prescribed electronic mode.

Frequently asked questions