Section 450: penalty for failure to comply with provisions of Section 185

Introduction

Section 450 concerns taking or accepting a loan, deposit or specified sum contrary to section 185. It permits the Assessing Officer to impose a penalty equal to the amount taken or accepted in breach.

Key takeaways

Contravention and penalty

If the taking or acceptance of a covered loan, deposit or specified sum contravenes Section 185, the Assessing Officer may impose a penalty equal to that amount.

When this provision applies

First determine whether the taking or acceptance contravened Section 185. Review the transaction classification, permitted payment mode, aggregation with relevant unpaid amounts, the parties and the statutory exceptions. The amount of a single receipt viewed in isolation may not answer that question.

Section 450 concerns the person taking or accepting the loan, deposit or specified sum. Its penalty base is the amount so taken or accepted in contravention, not a flat fee and not merely the part exceeding a threshold.

Limits and procedural safeguards

Do not treat every cash receipt as a Section 185 loan or deposit. The Chapter also defines specified sum, and Section 185 contains particular exceptions and special conditions. Identify the applicable category before computing a proposed penalty.

Section 470 includes Section 450 and prevents the penalty where reasonable cause for the failure is proved. Section 471 requires a hearing or reasonable opportunity through a show-cause notice. The words “may impose” should not be converted into an automatic penalty charge.

Step-by-step review

1. Classify the receipt under Section 185 and the relevant Chapter definitions.

2. Check the payment mode, current and relevant unpaid amounts, parties and all potentially applicable exceptions.

3. If a contravention is established, identify the amount taken or accepted in contravention as the Section 450 base.

4. Prepare the notice response with transaction evidence and any proved reasonable-cause case under Section 470.

Hypothetical example

Hypothetical illustration: assume a ₹60,000 loan was accepted in a manner that contravenes Section 185, after its conditions and exceptions have been checked. The possible Section 450 penalty is measured by ₹60,000, not only an amount above the applicable threshold. This assumes the contravention; it does not establish one merely from the transaction amount.

Records to prepare

Loan, deposit or property-related documentation identifying the nature of the sum.

Receipt and banking records, relevant unpaid balances and party details.

The exception analysis, notice response and evidence of any reasonable cause.

Official amended Act source

• Income-tax Act, 2025 as amended by Finance Act, 2026: Section 450 and related provisions

Step-by-step flow for applying Section 450

1. 1

   Did the person take or accept a loan, deposit or specified sum?

   • No: Section 450 does not apply.
   • Yes: Go to the next step.
2. 2

   Was it received through an account payee cheque, account payee bank draft, electronic clearing system through a bank account, or other prescribed electronic mode?

   These are the permitted modes in section 185(1).

   • Yes: No contravention of section 185, so Section 450 does not apply.
   • No: Go to the next step.
3. 3

   Is the amount, alone or with earlier unpaid amounts from the same person, ₹20,000 or more?

   This is the test in section 185(1)(i) to (iii). Under section 185(4), the limit is ₹2,00,000 for deposits and loans between a primary agricultural credit society or primary co-operative agricultural and rural development bank and its member.

   • No: Section 185(1) is not breached.
   • Yes: Go to the next step.
4. 4

   Is the transaction covered by an exclusion in section 185(2) or 185(3)?

   For example, loans or deposits taken or accepted from or by the Government, a banking company, post office savings bank or co-operative bank.

   • Yes: Section 185(1) does not apply, so there is no penalty.
   • No: Go to the next step.
5. 5

   Fix the penalty

   The Assessing Officer may impose a penalty equal to the amount of the loan, deposit or specified sum so taken or accepted.

Practical checklist

Glossary

Contravention

A failure to satisfy the applicable requirements of Section 185, after its conditions and exceptions are considered.

Penalty base

The amount of the loan, deposit or specified sum taken or accepted in contravention.

Frequently asked questions