Chapter XII - Mode of Payment in Certain Cases, etc.
Section 188
Section 188: mode of repayment of certain loans, deposits or specified advances
Section 188 mirrors Section 185 on the repayment side - a banking company, co-operative bank, other company, co-operative society, firm or other person cannot repay a loan, deposit, or specified advance of ₹20,000 or more in cash; it must go through an account payee cheque, account payee bank draft, ECS, or another prescribed electronic mode.
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Need advice on Section 188?
This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) No branch of a banking company or co-operative bank and no other company or co-operative society and no firm or other person shall repay—
(a) any loan or deposit made with it; or
(b) any specified advance received by it, except through––
(i) an account payee cheque;
(ii) account payee bank draft drawn in the name of the person who has made the loan or deposit or paid the specified advance; or
(iii) by use of electronic clearing system through a bank account, or any other prescribed electronic mode, if,––
(A) the loan or the deposit or specified advance, together with the interest, if any, payable thereon; or
(B) the aggregate amount of the loans or deposits held by such person with the branch of the banking company or co-operative bank or, as the case may be, the other company or co-operative society or the firm or other person (either individually or jointly) on the date of such repayment together with interest, if any, payable thereon; or
(C) the aggregate amount of the specified advances received by such person (either individually or jointly) on the date of such repayment together with the interest, if any, payable thereon, is ₹ 20000 or more.
(2) Irrespective of the provision in sub-section (1), a branch of a banking company or co-operative bank, may also make the repayment by crediting such loan or deposit to the savings bank account or current account, if any, with such branch of the person to whom such loan or deposit has to be repaid.
(3) Sub-section (1) shall not apply to repayment of any loan, deposit, or specified advance taken or accepted from—
(a) Government;
(b) any banking company, post office savings bank, or co-operative bank;
(c) any corporation established by a Central, State, or Provincial Act;
(d) any Government company as defined in section 2(45) of the Companies Act, 2013;
(e) any institution, association, or body or class of institutions, associations or bodies notified by the Central Government.
(4) In sub-section (1), “₹ 200000” shall be substituted for “₹ 20000” in the case of any deposit or loan where—
(a) such deposit is repaid to a member by a primary agricultural credit society or a primary co-operative agricultural and rural development bank; or
(b) such loan is repaid by a member to a primary agricultural credit society or a primary co-operative agricultural and rural development bank.
(5) For the purposes of this section, the expression “loan or deposit” means any loan or deposit of money which is repayable after notice or repayable after a period and, in the case of a person other than a company, includes loan or deposit of any nature.
Introduction
Section 188 regulates the mode of repayment, not merely the original amount borrowed or received. Interest payable and the aggregate amounts held with the payer can bring an otherwise smaller repayment within the threshold.
The statute also permits a bank branch to credit a customer's savings or current account with that same branch for repayment of a loan or deposit. Its listed exemptions and the higher threshold for specified agricultural-credit member transactions must be checked separately.
Key takeaways
Interest and balances count
The ₹20,000 test can be met by the amount being repaid with interest, the aggregate loan or deposit balances held with the payer, or aggregate specified advances with interest.
Permitted repayment methods
A covered repayment uses an account payee cheque or draft, electronic clearing through a bank account, or another prescribed electronic mode. A qualifying bank branch can also credit the customer's account held with that branch.
Check the exceptions
The rule excludes repayment of amounts taken from listed government and banking bodies or a notified body. A ₹2,00,000 threshold applies to the specified agricultural-credit society or rural-development-bank member transactions.
The core restriction
No branch of a banking company or co-operative bank, and no other company, co-operative society, firm or other person, shall repay a loan or deposit made with it, or a specified advance received by it, except through an account payee cheque, an account payee bank draft drawn in the name of the person who made the loan/deposit/advance, or by ECS through a bank account or another prescribed electronic mode, if:
- the loan, deposit or specified advance, together with any interest payable on it; or
- the aggregate amount of loans/deposits held by that person with the branch/company/society/firm (individually or jointly) on the repayment date, together with interest payable; or
- the aggregate amount of specified advances received by that person (individually or jointly) on the repayment date, together with interest payable, is ₹20,000 or more.
Repayment by crediting a bank account
A branch of a banking company or co-operative bank may also repay a loan or deposit by crediting it to the savings bank account or current account (if any) that the payee holds with that branch.
Exceptions
The restriction does not apply to repayment of a loan, deposit or specified advance taken or accepted from:
- 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 in Section 2(45) of the Companies Act, 2013;
- any institution, association, or body (or class of them) notified by the Central Government.
Higher ₹2,00,000 threshold for agricultural credit societies
The ₹20,000 threshold is replaced by ₹2,00,000 for a deposit repaid to a member by a primary agricultural credit society or a primary co-operative agricultural and rural development bank, or a loan repaid by a member to such a society/bank.
Definition
"Loan or deposit" means any loan or deposit of money that is repayable after notice or after a period, and, for a person other than a company, includes a loan or deposit of any nature.
Step-by-step flow for applying Section 188
- 1
Is the payment a repayment of a loan, deposit or specified advance?
For a person other than a company, loan or deposit includes a loan or deposit of any nature (Section 188(5)).
- No: Section 188 does not apply.
- Yes: Go to the next step.
- 2
Was it taken from an exempt lender?
Section 188(3): the Government, a banking company, post office savings bank, co-operative bank, statutory corporation, Government company or notified body.
- Yes: Section 188(1) does not apply.
- No: Go to the next step.
- 3
Which threshold applies?
₹20,000 in general; ₹2,00,000 for deposits repaid by, or loans repaid to, a primary agricultural credit society or primary co-operative agricultural and rural development bank and its member (Section 188(4)).
- 4
Does the amount with interest, or the aggregate held on the repayment date with interest, reach the threshold?
- Below the threshold: Section 188(1) does not restrict the mode.
- Threshold or more: Repay by account payee cheque, account payee bank draft in the lender's name, ECS through a bank account or a prescribed electronic mode. A bank branch may also credit the payee's account with that branch (Section 188(2)).
Practical checklist
Do
- Check the repayment amount together with outstanding balances where the section requires aggregation.
- Retain proof of the permitted repayment mode and identify any statutory exception relied on.
Avoid
- Apply the agricultural-credit-society threshold to an unrelated lender or borrower.
Illustrative example
Worked example: repaying a small deposit when others are outstanding
Hypothetical facts (illustration only, not a real taxpayer): A partnership firm holds two deposits from Ms. Kaur: ₹14,000 and ₹6,000. On the repayment date the interest payable on them totals ₹1,200. The firm wants to repay only the ₹6,000 deposit with its interest of ₹400 in cash.
Single deposit
₹6,000 + ₹400 = ₹6,400, which is below ₹20,000, so clause (A) alone is not met.
Aggregate held
Deposits held on the repayment date with interest: ₹14,000 + ₹6,000 + ₹1,200 = ₹21,200. That is ₹20,000 or more, so clause (B) is met.
Exceptions
Ms. Kaur is not an exempt lender under Section 188(3), and the ₹2,00,000 limit does not apply.
Outcome
- The ₹6,400 must be repaid by account payee cheque, account payee bank draft in her name, ECS or a prescribed electronic mode, not in cash.
- Check the total balance held for the lender, not just the amount being repaid.
Glossary
- Specified advance
- Money in the nature of an advance in relation to transfer of immovable property, whether or not the transfer takes place (Section 189).
- Loan or deposit
- A loan or deposit of money repayable after notice or after a period; for a person other than a company, it includes a loan or deposit of any nature.
Frequently asked questions
What is the cash repayment limit for loans and deposits under Section 188?
₹20,000 - once the loan/deposit/specified advance (together with any interest), or the aggregate outstanding balance with that lender, reaches ₹20,000 or more, repayment must be by account payee cheque, account payee bank draft, ECS, or another prescribed electronic mode.
Can a bank repay a deposit by crediting the customer's own account with it?
Yes - Section 188(2) specifically allows a banking company or co-operative bank branch to repay by crediting the loan or deposit to the payee's savings or current account at that branch.
What is a 'specified advance' under Section 188?
As defined in Section 189(d), it means any sum of money in the nature of an advance, by whatever name called, in relation to the transfer of an immovable property, whether or not the transfer takes place.
Is interest included when checking the ₹20,000 limit for repayment?
Yes. Section 188(1) includes the interest, if any, payable on the loan, deposit or specified advance, and on the aggregate amount held on the repayment date.
Need help applying this provision to your situation?
Check your cash repayment compliance with our tax teamLast updated 9 October 2026