Amount Borrowed or Repaid on Hundi – Section 69D

Hundi transactions have been a part of India’s traditional financial system for centuries. However, the government has imposed strict regulations on such transactions to curb tax evasion and unaccounted money circulation. Section 69D of the Income Tax Act, 1961, governs the borrowing and repayment of amounts through hundis, ensuring financial transparency. This blog provides a comprehensive understanding of Section 69D, its implications, and the penalties associated with non-compliance.

What is a Hundi?

A hundi is an informal financial instrument that functions as a promissory note or a bill of exchange, often used in trade and credit transactions. Unlike conventional banking instruments, hundis are traditionally used for unsecured lending and can be transferred from one person to another.

Understanding Section 69D of the Income Tax Act

Section 69D stipulates that:

• If a person borrows an amount through a hundi or repays an amount due on a hundi otherwise than through an account payee cheque drawn on a bank, the amount so borrowed or repaid is deemed as income of the person in the year in which the transaction took place.

• This provision aims to prevent the use of hundis for unaccounted transactions and ensure that all borrowings and repayments are made through verifiable banking channels.

Key Provisions of Section 69D

1. Tax Treatment: Any amount borrowed or repaid through a hundi in cash or any mode other than an account payee cheque is considered income of the borrower or payer for that financial year.

2. Single Taxation Principle: If an amount borrowed through a hundi is already taxed under this section, the same person cannot be taxed again when repaying the amount.

3. Inclusive of Interest: The term “amount repaid” includes both the principal amount and the interest paid on the hundi.

4. Applicability: This section applies to all individuals, businesses, and entities engaged in such transactions.

Consequences of Non-Compliance

• Tax Liability: Any amount borrowed or repaid in contravention of Section 69D is treated as undisclosed income and is fully taxable at the applicable slab rate.

• Penalty and Interest: Additional penalties and interest may be levied under sections such as 271(1)(c) for concealment of income.

• Legal Scrutiny: The transaction may invite scrutiny from the Income Tax Department, leading to further financial implications.

Exceptions and Compliance Tips

To ensure compliance with Section 69D:

• Always borrow or repay amounts on a hundi through an account payee cheque or an electronic banking channel.

• Maintain proper records and documentation of all transactions to avoid legal complications.

• Avoid dealing with informal credit instruments if they do not comply with tax regulations.

Conclusion

Section 69D of the Income Tax Act serves as a stringent measure to curb black money and unaccounted transactions conducted through hundis. Taxpayers must ensure that all borrowings and repayments through hundis are processed via account payee cheques to remain compliant with the law and avoid unnecessary tax implications. By adhering to these guidelines, businesses and individuals can maintain financial transparency and avoid legal disputes with tax authorities.

For expert assistance in tax compliance and financial advisory, consult a Chartered Accountant (CA) to navigate complex tax provisions efficiently.