Are you looking to repay your loan EMI in cash, but worried that you may get penalized for the same? There are several loan borrowers like you, who wish to repay their loan EMIs in cash but are reluctant to do so as they may get heavily penalized under the new section of Income Tax Act, 1961. But the tension seems to be fading now as Income Tax Department issued a clarification circular on 3rd July 2017. As per the circular, being a loan payer you can repay your loan EMI to your respective bank, NBFC and HFC in cash if it’s less than 2 Lakhs.
The circular was issued in reference to the introduction of new Section 269ST by Indian Finance Act, 2017during the budget. Income Tax Department in its new clause has stated that any individual, HUF, Firm or Company making cash transaction including loan EMI repayment and receipts of value of over 2 Lakhs will attract a penalty of equal amount to the transaction amount.
Let’s understand the applicability of the clause with an example. Suppose your Home Loan EMI is 3 Lakhs and you want to repay it via cash, you cannot do so as the law has restricted the cash payment of amount 2 Lakhs and above. If you still try to repay it in cash then it would be considered as breach of law and you would become liable to pay penalty of same amount as your home loan EMI. So, you might have to pay in total of 6 Lakhs out of your pocket.
Income Tax Department only issued the instructions but did not issue any supportive clarification on its applicability. It was not clear if the rule would be applicable to single instalment repayment of loan or to the entire loan repayment amount. This confusion among people created chaos in terms of loan repayments via cash and eventually they hesitated in making cash repayments.
To clarify the mounting confusion, Income Tax Department issued a supporting circular to section 269STon 3rd July 2017. The circular states that the restriction of cash payment would only be applicable to single loan instalment in cash and not on the aggregate loan amount. This means that you can repay your loan EMI in cash only if EMI amount is less than 2 Lakhs otherwise you can choose other modes of repayment including NEFT, RTGS or Cheque.
So, it is advisable for you to consider the respective law while making repayment of your loan EMI in to safeguard yourself from paying hefty penalty.
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