The section provides a penalty for one specific default: where 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.
Why it is there
Section 188 controls the manner in which a loan, deposit or specified advance may be repaid, and a rule about the mode of repayment is unenforceable unless the money itself is at stake. The penalty is therefore measured by the whole amount repaid in the wrong manner rather than by any tax effect, because the mischief is the untraceable movement of money, not an understatement of income.
Who it applies to
A person who repays a loan, deposit or specified advance referred to in section 188
The Assessing Officer, who may impose the penalty
The figures, and what each one turns on
Read the condition in the same row. A figure quoted without it is a wrong answer with a citation attached.
What
Figure
The condition on it
Where
Penalty
An amount equal to the loan or deposit or specified advance so repaid
Where the repayment is made otherwise than in accordance with the provisions of section 188
Section 453
What this means in practice
The penalty is not a percentage and has no ceiling of its own — it equals the entire amount repaid in breach, so a single repayment can attract a penalty of the same size as the sum repaid, irrespective of whether any tax was avoided. The section says the Assessing Officer "may" impose it, so the power is discretionary rather than automatic. What triggers it is the manner of repayment, not the making of the loan or deposit: the default is repaying otherwise than in accordance with section 188, so whether the amount was properly taken in the first place is a different question governed elsewhere.
An example
Illustrative only, and invented for this page. The figures are chosen to show the rule biting, not taken from any real matter.
A firm repays a loan of Rs 25 lakh in a manner that section 188 does not permit. The Assessing Officer may impose a penalty of Rs 25 lakh — the whole amount repaid — even though the repayment reduced no income and produced no tax loss. Splitting the repayment into instalments does not reduce the exposure, because the penalty is measured by the loan, deposit or specified advance so repaid.
Where you meet this section
As a penalty notice and order from the Assessing Officer following an assessment or audit in which a repayment outside section 188 has come to light, usually from the books or bank records rather than from the return itself.
The words themselves
the Assessing Officer may impose on him, a penalty equal to the loan or deposit or specified advance so repaid
Section 453, Income-tax Act, 2025.
otherwise than in accordance with the provisions of that section
Section 453, Income-tax Act, 2025.
What people get wrong
Expecting the penalty to be a percentage of the amount or linked to tax evaded. It is equal to the loan, deposit or specified advance so repaid.
Reading the penalty as automatic. The section says the Assessing Officer may impose it.
Confusing the default with taking a loan or deposit improperly. This section is triggered by repayment otherwise than in accordance with section 188.
Assuming a genuine transaction or an absence of tax effect is an answer on the face of the section. The section fixes the penalty by reference to the amount repaid in breach, and states no such exception.
What this replaced
The correspondence is the Income Tax Department’s own, from its comparison utility for the 1961 and 2025 Acts. A renumbering is the easy half; whether the words changed is the half that decides cases.
271E - Penalty for failure to comply with the provisions of section 269T
Read this before you rely on it. Every decision below was decided under the Income-tax Act, 1961. It appears here because it is tagged to a 1961 provision that the department’s own mapping carries to section 453. That is an inference we have drawn, not a holding on the new section: where the words changed in the move, the reasoning may not survive. Treat this as the place to start looking, not as authority on the 2025 Act.
CIT v Jai Laxmi Rice MillsSupreme CourtHelps taxpayertagged s.271E The assessment in which the s.271E satisfaction was recorded has been set aside. Can the penalty stand?
PCIT v Shree Madhi Surali VibhagHigh CourtHelps taxpayertagged s.271E Our co-operative credit society took and repaid cash from its members and the appellate authorities deleted the 271D and 271E penalties on reasonable…
Sandeep Kaur Gill v Union of IndiaHigh CourtHelps taxpayertagged s.271E The financier insisted on cash. Can they penalise me under 271E for repaying the loan in cash?
DCIT v Umiya Co-operative Credit Society LtdITATHelps taxpayertagged s.271E Our credit society takes deposits and repays loans in cash to members. Can the department levy 271D and 271E on the whole amount?
What this page does not tell you. It does not reproduce the section. Everything above was written from the section’s own text as the Income Tax Department publishes it — the text is here, and nothing here is advice on your facts. Where a figure matters, read the sub-section it comes from.