Income Tax Act 2025: Section 185 for Tax Year 2026-27

Mode of taking or accepting certain loans, deposits and specified sum

[Section-185 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]

Section 185(1) of Income Tax Act 2025

185(1) No person shall take or accept from another person any loan or deposit or specified sum, except through—

• (a) an account payee cheque;
• (b) account payee bank draft;
• (c) electronic clearing system through a bank account; or
• (d) any other prescribed electronic mode,

if,––

• (i) the amount or the aggregate amount of such loan, deposit, or specified sum; or
• (ii) 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, as on the date of taking or accepting such amount as referred to in clause (i); or
• (iii) the aggregate of the amounts referred to in of clauses (i) and (ii),

is twenty thousand rupees or more.

Section 185(2) of Income Tax Act 2025

185(2) Sub-section (1) shall not apply to loans or deposits or specified sums taken or accepted from or by,––

• (a) the 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 under 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 185(3) of Income Tax Act 2025

185(3) The provisions of sub-section (1) shall not apply to any loan or deposit or specified sum where, the person taking or accepting such loan or deposit or specified sum and person from whom such loan or deposit or specified sum is taken or accepted, both, have agricultural income and neither has any income chargeable to tax under this Act.

Section 185(4) of Income Tax Act 2025

185(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 accepted by a primary agricultural credit society or a primary co-operative agricultural and rural development bank from its member; or
• (b) such loan is taken from a primary agricultural credit society or primary co-operative agricultural and development bank by its member.

Section 185(5) of Income Tax Act 2025

185(5) In this section, “loan or deposit” means loan or deposit of money.

FAQs on Section 185 of Income Tax Act 2025

What is the main requirement under Section 185(1) for taking or accepting loans, deposits, or specified sums?
Any person can take or accept a loan, deposit, or specified sum of ₹20,000 or more only through account payee cheque, account payee bank draft, electronic clearing system through a bank account, or any other prescribed electronic mode.

When does the restriction under Section 185(1) apply?
It applies if the amount being accepted, or any unpaid earlier amount from the same person, or both combined, equals or exceeds ₹20,000.

Are there any exceptions to the restriction under Section 185(1)?
Yes, certain entities and situations are excluded as per sub-sections (2), (3), and (4).

Which entities are exempt from the restriction under Section 185(2)?
Loans or deposits or specified sums taken or accepted from or by the following are exempt:

• The Government
• Any banking company, post office savings bank, or co-operative bank
• Any corporation established by a Central, State or Provincial Act
• Any Government company under the Companies Act, 2013
• Institutions, associations, or bodies notified by the Central Government

Is the provision applicable to transactions between two agriculturists?
No, as per Section 185(3), if both persons have only agricultural income and no taxable income under this Act, the provision does not apply.

Is there a higher threshold limit for any specific entities?
Yes, under Section 185(4), the threshold is ₹2,00,000 instead of ₹20,000 for loans or deposits between a member and a primary agricultural credit society or a primary co-operative agricultural and rural development bank.

What is the meaning of ‘loan or deposit’ in this section?
As per Section 185(5), “loan or deposit” refers specifically to a loan or deposit of money.

Does the section cover ‘specified sums’ as well?
Yes, in addition to loans and deposits, it also applies to specified sums, though the term should be interpreted as per the rules or context prescribed elsewhere in the Act.

What modes of payment are permitted for transactions covered under this section?
The permitted modes are account payee cheque, account payee bank draft, ECS (electronic clearing system) through a bank account, or any other prescribed electronic mode.

What is the consequence of violating Section 185(1)?
While Section 185 itself does not specify penalties, violation may attract consequences under other penalty provisions of the Income Tax Act, 2025.