Can a Bank Accept Prepayment of a Home Loan by Cash?

Can a Bank Accept Prepayment of a Home Loan by Cash?

Can a bank accept prepayment of a HomeLoan by cash? The most straightforward answer to this question is YES, it can.

We shall look into the circumstances as to why such a question has arisen in the first place. The Government of India has introduced a new section in the Income Tax Act, Sec 269ST during the annual budget for 2017-18. This section has created some doubts in the minds of people about accepting cash equal to or more than Rs. 2Lakhs in a single transaction. The Government introduced this section as part of its endeavour to curb black money transactions.

What does Section 269ST say?

Sec 269ST of the Income Tax Act 1961 prohibits any person to receive an amount of more than Rs. 2Lakhs and above in cash:

  • In aggregate from one person in a single day OR
  • Ina single transaction OR
  • In respect of transactions relating to one event or occasion from a person

The section further clarifies that you can receive the amount by way of an account payee cheque or an account payee demand draft or through the electronic clearing system through a bank account.

The same Sec269ST further states that the following entities are exempt from the provisions of this section.

The exceptions to Sec269ST

  • The Government
  • Any banking company, post-office savings bank, or co-operative bank
  • Transactions of nature referred to in Sec 269SS
  • Other persons or class of persons or receipts that the Central Government may notify through the Official Gazette

People started misinterpreting Sec 269ST by thinking that all transactions involving cash receipts of Rs. 2Lakhs and above as illegal. Hence, you get mixed opinions when you put up such questions before people.

Clarification from the Income Tax Department

The Income Tax Department has clarified in a circular dated July 03, 2017 that the repayment of the loan by the NBFCs and HFCs will fall under the purview of Sec 269ST Clause (b) if the repayment of “ONE” loan instalment is equal to or above Rs. 2Lakhs. There is no need to aggregate all the loan instalments to determine the applicability of the provisions of Sec 269ST.

The position regarding acceptance of cashin the Home Loan account

The IT Department circular is very clear in stating that banks can accept cash deposits on Secured Home Loanaccount for amounts equal to or more thanRs. 2Lakhs provided the individual EMI (Equated Monthly Instalment) is not equal to or over Rs. 2Lakhs. Therefore, if you deposit any amount in your Home Loan account as prepayment or foreclosure of your Home Loan account in cash, the banks have to accept the same.

The banks can ask for the source of funds from you. You should satisfy the bank officials that the sources are genuine. You have to abide by the Income Tax Department’s stipulation that any cash deposit of Rs. 50,000 and above should include the PAN details of the depositor. The banker is within his rights in accepting cash deposits of Rs. 2Lakhs and above in the home loan account as per the provisions of Sec 269ST of the Income Tax Act 1961. The banker should obtain the PAN details and accept the cash. There is no need for the banker to refuse to accept cash because cash is a legal tender.

Precautions you should take while depositing cash Rs. 2Lakhs and above:

  • As a depositor, you should be careful while dealing with large cash deposits because such deposits come under the scrutiny of the Income Tax Department.
  • Maintain a proper trail of the cash transactions.
  • Remember, the bank can accept cash deposits of 2Lakhs and above but you, as an individual, cannot. Hence, you should exercise great care while receiving cash from your customers or clients.
  • You have to furnish your PAN details to the bank if you deposit a sum equal to or more than 50,000on a single occasion.

The solution

You can route the transaction through a bank account. You can deposit cash in your savings account (the same rules apply here as well) and transfer the sum to your loan account. However, it is always advisable to accept account payee cheques or DDs from your clients/customers if the amount is above the permissible value of Rs. 2Lakhs.

Now, you have seen that a bank can accept prepayment of the home loan in cash irrespective of the amount. The Sec269ST of the IT Act 1961 is not applicable to banking companies.

Also Read:Home Loan Overdraft Facility: Introduction and Benefits

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