Mode of repayment of certain loans or deposits
[Section-188 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 188(1) of Income Tax Act 2025
188(1) No branch of a banking company or co-operative bank and no other company or co-operative society and no firm or other person shall repay—
- 188(1)(a) any loan or deposit made with it; or
- 188(1)(b) any specified advance received by it,
except through––
- (i) an account payee cheque; or
- (ii) account payee bank draft drawn in the name of the person who has made the loan or deposit or paid the specified advance; or
- (iii) by use of electronic clearing system through a bank account, or any other prescribed electronic mode,
if,––
- (A) loan or deposit or specified advance, together with the interest, if any, payable thereon; or
- (B) the aggregate amount of the loans or deposits held by such person with the branch of the banking company or co-operative bank or, as the case may be, the other company or co-operative society or the firm or other person (either individually or jointly) on the date of such repayment together with interest, if any, payable thereon; or
- (C) the aggregate amount of the specified advances received by such person (either individually or jointly) on the date of such repayment together with the interest, if any, payable thereon,
- is twenty thousand rupees or more.
Section 188(2) of Income Tax Act 2025
188(2)Irrespective of the provision in sub-section (1), a branch of a banking company or co-operative bank, may also make the repayment by crediting such loan or deposit to the savings bank account or current account, if any, with such branch of the person to whom such loan or deposit has to be repaid.
Section 188(3) of Income Tax Act 2025
188(3)Sub-section (1) shall not apply to repayment of any loan, deposit, or specified advance taken or accepted from—
- (a)Government;
- (b)any banking company, post office savings bank, or co-operative bank;
- (c)any corporation established by a Central, State, or Provincial Act;
- (d)any Government company as defined in section 2 (45) of the Companies Act, 2013;
- (e)any institution, association, or body or class of institutions, associations or bodies notified by the Central Government.
Section 188(4) of Income Tax Act 2025
188(4)In sub-section (1), “two lakh rupees” shall be substituted for “twenty thousand rupees” in the case of any deposit or loan where—
- (a)such deposit is paid to a member by a primary agricultural credit society or a primary co-operative agricultural and rural development bank; or
- (b)such loan is repaid by a member to a primary agricultural credit society or a primary co-operative agricultural and rural development bank.
Section 188(5) of Income Tax Act 2025
188(5)In this section, “loan or deposit” means any loan or deposit of money which is repayable after notice or repayable after a period and, in the case of a person other than a company, includes loan or deposit of any nature.
FAQs on Section 188 of Income Tax Act 2025
What is the primary rule for repaying loans, deposits, or specified advances under Section 188(1)?
Such repayments must be made only through an account payee cheque, account payee bank draft, or prescribed electronic modes if the amount involved is ₹20,000 or more.
What types of payments are covered under Section 188(1)?
It covers repayment of any loan or deposit made with a person, or any specified advance received by a person.
What is meant by “specified advance”?
A “specified advance” refers to money received in relation to the transfer of an immovable property, whether or not such transfer takes place.
What if the aggregate of loans, deposits, or advances (with interest) is ₹20,000 or more—does Section 188 apply?
Yes. If the total amount (individually or jointly) is ₹20,000 or more on the date of repayment, Section 188 applies.
Can repayment be made by crediting the amount to the borrower’s bank account?
Yes, as per Section 188(2), a banking company or co-operative bank branch may repay by crediting the amount to the person’s savings or current account with the same branch.
Are there any exceptions to the restriction imposed by Section 188(1)?
Yes, Section 188(3) provides exceptions for repayments made to the Government, banks, notified institutions, Government companies, or certain statutory corporations.
Does Section 188 apply to repayments made by or to a primary agricultural credit society or a co-operative agricultural and rural development bank?
Yes, but with a higher threshold. Under Section 188(4), the limit is ₹2,00,000 instead of ₹20,000 for such cases involving members.
What is the definition of “loan or deposit” under Section 188(5)?
It means any repayable loan or deposit of money, either after notice or after a period. For non-company persons, it includes loans or deposits of any nature.
What are the prescribed electronic modes of repayment permitted under Section 188(1)?
They include NEFT, RTGS, IMPS, UPI, and other modes as may be notified by the Central Government.
Is cash repayment allowed if the amount is less than ₹20,000?
Yes, cash repayment is not prohibited if the repayment amount (including interest) is below ₹20,000 and the total aggregate with the lender or depositor does not reach ₹20,000.
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