Chapter XXI - Penalties
Section 453
Section 453: penalty for failure to comply with provisions of Section 188
Section 453 allows the Assessing Officer to impose a penalty when a loan, deposit or specified advance referred to in Section 188 is repaid contrary to that section. The stated penalty equals the amount repaid in contravention.
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Need advice on Section 453?
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
If a person repays any loan or deposit or specified advance referred to in section 188 otherwise than in accordance with the provisions of that section, the Assessing Officer may impose on him, a penalty equal to the loan or deposit or specified advance so repaid.
Introduction
Section 453 addresses repayment rather than acceptance of loans, deposits or specified advances. A repayment that contravenes section 188 may lead to a penalty equal to the amount repaid in breach.
Key takeaways
Repayment trigger
The person repays a loan, deposit or specified advance covered by Section 188 otherwise than Section 188 allows.
Penalty amount
The Assessing Officer may impose an amount equal to the loan, deposit or specified advance so repaid.
Repayment in contravention
Section 453 concerns repayment of a loan, deposit or specified advance referred to in Section 188 that does not comply with that section.
Measure of the penalty
The penalty the Assessing Officer may impose equals the amount so repaid.
Applying Section 453 in practice
Measure. Repaying a covered loan, deposit or specified advance otherwise than section 188 permits can attract a penalty equal to the amount repaid. It targets the repayment event; section 450 concerns a different receipt event. Checklist: original liability, payee, repayment date, amount, mode and statutory exceptions. Hypothetical: A loan originally received properly may still have an impermissible repayment mode. Section 470 reasonable cause requires separate proof.
Step-by-step flow for applying Section 453
- 1
Did the person repay a loan or deposit made with it, or a specified advance received by it?
Section 188 covers a branch of a banking company or co-operative bank, any other company or co-operative society, a firm or other person.
- No: Section 453 does not apply.
- Yes: Go to the next step.
- 2
Was it repaid through an account payee cheque, account payee bank draft drawn in the lender's name, electronic clearing system through a bank account, or other prescribed electronic mode?
For a bank branch, section 188(2) also allows crediting the lender's savings or current account with that branch.
- Yes: Repaid in accordance with section 188, so no penalty.
- No: Go to the next step.
- 3
Is the amount, with interest, or the aggregate held on the date of repayment with interest, ₹20,000 or more?
This is the test in section 188(1)(A) to (C). Under section 188(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 188(1) is not breached.
- Yes: Go to the next step.
- 4
Was the loan, deposit or advance taken or accepted from a person excluded by section 188(3)?
For example, the Government, a banking company, post office savings bank or co-operative bank.
- Yes: Section 188(1) does not apply, so there is no penalty.
- No: Go to the next step.
- 5
Fix the penalty
The Assessing Officer may impose a penalty equal to the loan, deposit or specified advance so repaid.
Practical checklist
Do
- Retain repayment instructions and banking evidence for the transaction.
- Check the section 188 amount tests, permitted methods and exceptions before concluding there was a contravention.
Avoid
- Do not use the section 185 acceptance test as though it were the section 188 repayment test.
Illustrative example
Worked example: a deposit repaid in cash
Hypothetical facts (illustration only, not a real taxpayer): A partnership firm had accepted a deposit of ₹80,000 from a customer by cheque. It repays the ₹80,000 in cash and pays the interest separately by bank transfer. The customer is not an excluded person under section 188(3). The amounts are assumed for illustration.
Mode
Cash is not a mode allowed by section 188(1), so the repayment of ₹80,000 is not in accordance with that section.
Amount test
The deposit alone is ₹80,000, which is ₹20,000 or more, so the test in section 188(1) is met.
Penalty measure
Section 453 allows a penalty equal to the deposit so repaid: ₹80,000.
Discretion
The Assessing Officer "may" impose the penalty. That the deposit was originally accepted by cheque does not cure a cash repayment.
Outcome
- Possible penalty under Section 453: ₹80,000.
- The penalty falls on the firm that repays, not on the customer who receives the money.
Frequently asked questions
Does Section 453 address taking a loan or repaying one?
It addresses repayment of a loan, deposit or specified advance referred to in Section 188.
Is the penalty amount a fixed rupee sum?
No. It is equal to the amount repaid in contravention, if the Assessing Officer imposes it.
Need help applying this provision to your situation?
Get help responding to a Section 188 penalty noticeLast updated 2026-10-10