Shares Subscribed in Cash by the subscribers to MOA

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VAIBHAV (Querist)
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04 July 2016 whether a pvt limited company can receive share subscription money from promoters/directors(subscribers to MOA) in cash at the time of incorporation??? Please refer for companies act 2013 as well as income tax act,1961. Kindly refer. Thanks in advance.

c.bakshi

c.bakshi (Expert)
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05 July 2016 no as per the provisions of companies Act, 2013 such money can only be allowed in the form of chq, DD or any other banking channel e.g. NEFT/RTGS. and cash is not used and INCOME TAX SECTION 269 clearly says that promoter/director of the company make payment in the banking mode only. account payee cheque etc.

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VAIBHAV

VAIBHAV (Querist)
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05 July 2016 Thanks bakshi.... can you please mention the related provision of companies law which requires that amount shall not be received in cash??

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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25 July 2025 Excellent question — and it's a practical one that often comes up during company incorporation. Let's carefully break this down from both the **Companies Act, 2013** and **Income Tax Act, 1961** perspectives.

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## ✅ 1. Under the **Companies Act, 2013**

There is **no specific provision** in the Companies Act, 2013 that **explicitly prohibits** receiving **share subscription money in cash** from subscribers to the **Memorandum of Association (MoA)**.

### 🔹 BUT – Practical Implications:

When a company is incorporated:

* Form **INC-20A** (declaration of commencement of business) must be filed within **180 days**.
* It requires the company to **attach a proof of deposit of the subscription money** into the **company’s bank account**.

👉 This implies that:

> **The amount must be deposited via a traceable banking channel** — such as NEFT, RTGS, IMPS, Cheque, or Demand Draft.

So even though the Act doesn’t directly ban cash, in practice, **you cannot use cash** because:

* The ROC requires **bank proof** (e.g. bank statement showing receipt).
* Cash is **not traceable or verifiable** in such records.

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## ✅ 2. Under the **Income Tax Act, 1961**

Here’s where cash is **clearly restricted**.

### 🔹 Section 269ST – Restriction on Cash Receipts:

> No person shall receive an amount of ₹2,00,000 or more:
>
> * In aggregate from a person in a day,
> * Or in respect of a single transaction,
> * Otherwise than by an **account payee cheque, bank draft, or electronic clearing system**.

Since **share capital** is received **in lump sum**, Section **269ST prohibits** receiving ₹2 lakh or more **in cash**.

Also note:

### 🔹 Section 68 (Unexplained Cash Credits):

If a company receives money (including share capital), it must **explain the identity, creditworthiness, and genuineness** of the transaction. Cash makes this extremely difficult.

If not properly explained, the **amount may be treated as income** and taxed at a high rate under **Section 115BBE** (up to \~78%).

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## ✅ Final Position:

| Law | Can Share Capital Be Received in Cash? |
| -------------------- | --------------------------------------------------------------------------------------- |
| Companies Act, 2013 | ❌ **Not practically feasible**, as proof of deposit in bank is required in Form INC-20A |
| Income Tax Act, 1961 | ❌ **Section 269ST prohibits cash receipts ≥ ₹2 lakh**; Section 68 also discourages cash |

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## 📌 Recommendation:

👉 Always receive share capital via **account payee cheque, DD, or bank transfer** — even if amount is below ₹2 lakh — to comply with both ROC and tax requirements.

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Would you like a sample format for a **bank proof declaration** or **subscriber declaration** for Form INC-20A?

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