Huf - cash from kerta

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

21 March 2012 Dear Sir,
Whether HUF can take loan or Advance in cash of amount more than Rs. 20,000/- from its Karta or any other member of HUF ?

If not is there any other way to take cash?

Thanks

Raj

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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21 March 2012 If any concern accepts loans in cash exceeding Rs. 20,000/- then Section 269SS is attracted.

Accordingly, penalty u/s 271d equal to the amount of loan accepted shall be levied.

Querist : Anonymous

Querist : Anonymous (Querist)

22 March 2012 It Means if we require 51,000/- we can accept from three person & will nether attract any penalty nor will disallowed under IT.

Reply,....

Thanks

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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28 July 2024 Under the Income Tax Act, 1961, specific rules and regulations govern the acceptance of cash in relation to loans or advances, particularly when dealing with HUFs (Hindu Undivided Families) and their transactions. Here's a detailed explanation regarding cash transactions for loans or advances:

### **1. Acceptance of Cash by HUF from Karta or Members**

**Cash Transaction Rules:**
- **Income Tax Act, 1961 – Section 269SS:** This section mandates that any loan or deposit of ₹20,000 or more must be accepted by cheque or bank draft. Cash transactions exceeding this limit are prohibited.

**Implications:**
- **Loans/Advances from Karta or Members:** An HUF cannot accept a loan or advance exceeding ₹20,000 in cash from its Karta or any other member. Accepting such an amount in cash would be in violation of Section 269SS, leading to potential penalties or disallowance.

**Penalty for Non-Compliance:**
- **Section 271D:** If the HUF accepts a loan or advance in cash exceeding ₹20,000, it may face a penalty under Section 271D. The penalty can be equivalent to the amount of the loan or advance received in contravention of the law.

### **2. Accepting Cash: Alternative Approaches**

**1. Accept Cash in Installments:**
- **Multiple Transactions:** If the total amount needed is ₹51,000, you can accept it in multiple transactions of ₹20,000 or less. For example, if you receive ₹20,000 in one transaction and the remaining ₹31,000 in two additional transactions of ₹10,000 and ₹21,000, the total amount is spread across different transactions. Each individual transaction must comply with the ₹20,000 limit.

**2. Documented Loans from Relatives:**
- **Cheque or Bank Transfer:** Ensure all loans or advances exceeding ₹20,000 are received via cheque, bank draft, or electronic transfer. This helps in maintaining compliance with the Income Tax Act and avoiding any issues.

### **3. Practical Implementation**

**1. **Document and Maintain Records:**
- **Loan Agreement:** Draft a formal loan agreement if you are receiving loans or advances. Ensure it is well-documented, specifying the terms, amount, and repayment schedule.
- **Bank Transactions:** Prefer bank transactions for any amount exceeding ₹20,000. This ensures compliance and makes it easier to track and verify transactions.

**2. **Consult with a Tax Professional:**
- **Advice and Compliance:** Consult a chartered accountant or tax professional to ensure that all transactions are compliant with the Income Tax Act and to receive advice tailored to your specific situation.

### **Summary**

- **Cash Transaction Limit:** An HUF cannot accept loans or advances exceeding ₹20,000 in cash from its Karta or any other member without violating Section 269SS.
- **Penalties:** Accepting cash beyond this limit can result in penalties under Section 271D.
- **Alternative:** Accepting cash in smaller installments (each not exceeding ₹20,000) is an alternative, but it must be properly documented.
- **Documentation:** Always document transactions and prefer bank transfers for amounts exceeding ₹20,000 to ensure compliance and avoid penalties.

Following these guidelines ensures compliance with tax regulations and avoids potential legal issues related to cash transactions.

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