Section 185 — Mode of taking or accepting certain loans, deposits and specified sum. Successor to s.269SS of the 1961 Act.
Section 185 is in Chapter XII — Mode of Payment in Certain Cases etc., which runs from section 185 to section 189.
Sub-section (1) prohibits any person from taking or accepting from another person any loan, deposit or specified sum otherwise than through an account payee cheque, an account payee bank draft, an electronic clearing system through a bank account, or any other prescribed electronic mode. It bites where any of three amounts is Rs. 20000 or more: the amount or aggregate amount being taken; the amount or aggregate amount previously taken from that same person and remaining unpaid on that date, whether or not due for repayment; or the aggregate of both.
Sub-section (2) lifts the prohibition where the counterparty is the Government, a banking company, post office savings bank or co-operative bank, a corporation established by a Central, State or Provincial Act, a Government company under section 2(45) of the Companies Act, 2013, or a notified institution, association or body. Sub-section (3) lifts it where both parties have agricultural income and neither has any income chargeable to tax under the Act. Sub-section (4) substitutes Rs. 200000 for Rs. 20000 where a deposit is accepted by a primary agricultural credit society or a primary co-operative agricultural and rural development bank from its member, or a member takes a loan from such a society or bank. Sub-section (5) confines "loan or deposit" to one of money.
Cash loans and deposits leave no trail, and are the standard way of introducing unaccounted money into a set of books and of manufacturing an explanation for a credit after the fact. Requiring the money to move through an account payee instrument or a bank channel makes both sides verifiable. The aggregation limbs exist because the rule would otherwise be defeated by splitting one loan into several receipts.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Threshold at which the banking-channel requirement applies | Rs. 20000 or more | Tested against the amount being taken, the unpaid amount of earlier loans, deposits or specified sums from the same person, or the aggregate of the two | Sub-section (1), closing words with clauses (i) to (iii) |
| Substituted threshold for a primary agricultural credit society or a primary co-operative agricultural and rural development bank | Rs. 200000 | Substituted for Rs. 20000 where such a society or bank accepts a deposit from its member, or a member takes a loan from it | Sub-section (4)(a) and (b) |
The threshold is not per transaction. Clause (ii) brings in earlier loans, deposits or specified sums from the same person still unpaid on the date of the new receipt, whether or not due, and clause (iii) aggregates them with the fresh amount — so a Rs. 5000 cash receipt from a person already owed Rs. 40000 is caught. The permitted modes are a closed list, and a cheque that is not account payee is not among them. The exemptions in sub-section (2) turn on the identity of the counterparty, and sub-section (3) is narrow: both parties must have agricultural income and neither any income chargeable under the Act. The Rs. 200000 figure is confined to the two named kinds of society and bank and to their members.
An individual owes a friend Rs. 40000 on an old unsecured loan and takes a further Rs. 5000 from him in cash. Sub-section (1)(ii) looks at the unpaid Rs. 40000, and clause (iii) at the aggregate of Rs. 45000, so the fresh receipt had to come through an account payee cheque, account payee bank draft, electronic clearing system or a prescribed electronic mode even though it was only Rs. 5000. Had it been a deposit accepted by a primary agricultural credit society from its member, the threshold would read as Rs. 200000.
You meet this section when a cash credit or unsecured loan shows up in the books during a scrutiny or survey and the Assessing Officer asks how the money moved. It is a prohibition, not a filing requirement; the consequence of breaching it comes through the penalty provisions of the Act.
No person shall take or accept from another person any loan or deposit or specified sum, except through—
the amount or the aggregate amount of any previously taken or accepted loan or deposit or specified sum by such person from such another person, which is remaining unpaid, whether due for repayment or not
See the full 1961 to 2025 concordance.
All of them are in the Rules 2026 index.
See the circulars index.
See the notifications index.
