By CA Surekha S Ahuja
Clause 31 of Form 3CD is often treated as a cash transaction clause.
That is not the right way to approach it.
Clause 31 covers specified loans, deposits, specified sums, repayments and high-value receipts and payments. Under Clauses 31(a), 31(b) and 31(c), a transaction is reportable even where it has been undertaken through a permitted banking or electronic mode.
For FY 2025-26 / AY 2026-27, Form 3CD under the Income-tax Act, 1961 continues to apply.
The safest approach is:
Identify → Aggregate → Determine the Clause → Report → Identify the actual mode → Test compliance → Check exceptions
The most important point: Reporting is not the same as violation
This distinction should be understood first.
A qualifying transaction under 31(a), 31(b) or 31(c) does not become non-reportable merely because it was made through a permitted mode.
For example:
- ₹10 lakh loan received through NEFT;
- ₹5 lakh specified sum received through RTGS; or
- ₹8 lakh qualifying loan/deposit repaid through RTGS.
The mode may be compliant, but the qualifying transaction is still relevant for Clause 31 reporting.
Therefore:
Reportability and compliance are two separate tests.
- First: Is the transaction covered by Clause 31?
- Second: Was the prescribed mode followed?
This is the single most important practical distinction in completing Clause 31.
The position is different for Clauses 31(ba) to 31(bd), 31(d) and 31(e). These capture transactions where the prescribed mode requirements are not followed. For these sub-clauses, the mode itself determines whether the transaction falls within the reporting requirement.
Clause 31 at a glance
| Clause | What is reported | Main provision | Practical trigger |
|---|---|---|---|
| 31(a) | Loan or deposit accepted | 269SS | ₹20,000 threshold |
| 31(b) | Specified sum received | 269SS | ₹20,000 threshold |
| 31(ba) | High-value receipt through non-prescribed mode | 269ST | ₹2 lakh |
| 31(bb) | Such receipt by non-account-payee cheque/draft | 269ST | ₹2 lakh |
| 31(bc) | High-value payment through non-prescribed mode | 269ST | ₹2 lakh |
| 31(bd) | Such payment by non-account-payee cheque/draft | 269ST | ₹2 lakh |
| 31(c) | Loan/deposit/specified advance repaid | 269T | ₹20,000 threshold |
| 31(d) | Specified repayment received otherwise than through prescribed modes | 269T | ₹20,000 threshold |
| 31(e) | Such repayment received by non-account-payee cheque/draft | 269T | ₹20,000 threshold |
The current tax-audit guidance separately identifies 31(a), 31(b), 31(c), 31(d) and 31(e), including the different reporting treatment for repayments.
The Clause 31 flow chart
START — Is there a loan / deposit / specified sum / specified advance / high-value receipt or payment?
1. IDENTIFY THE NATURE
Loan / Deposit / Specified Sum / Repayment / Other Receipt or Payment
↓
2. APPLY THE RELEVANT THRESHOLD
- ₹20,000 → Sections 269SS / 269T
- ₹2 lakh → Section 269ST
↓
3. APPLY THE STATUTORY AGGREGATION TEST
- 269SS: current amount + earlier unpaid amount from the same person
- 269T: amount with interest + aggregate amount held from that person
- 269ST: person-wise daily aggregate, single transaction, and one event or occasion
↓
4. IDENTIFY THE CORRECT CLAUSE 31
↓
5. REPORT
- Under 31(a), 31(b) and 31(c), report the qualifying transaction; do not exclude it merely because payment was through bank/electronic mode.
- Under 31(ba) to 31(bd), 31(d) and 31(e), the prescribed/non-prescribed mode determines whether the transaction is reportable.
↓
6. RECORD THE ACTUAL MODE SEPARATELY
Cash / account-payee cheque / account-payee draft / ECS / prescribed electronic mode / other
↓
7. TEST COMPLIANCE
Permitted mode?
YES:
31(a), 31(b), 31(c) → reportable + compliant
Other mode-based sub-clauses → not reportable on account of prescribed-mode compliance
NO:
Reportable + examine exception / reasonable cause / penalty
1. Section 269SS — loan, deposit or specified sum accepted
Section 269SS restricts acceptance of a loan, deposit or specified sum otherwise than through the prescribed banking/electronic modes where the statutory threshold is attracted.
The test is not always limited to the amount of the individual receipt. Relevant earlier unpaid amounts and aggregation have to be considered.
Trigger
Check whether the relevant amount reaches the ₹20,000 threshold, including the statutory aggregation rules.
Example
- Opening loan balance from a person: ₹18,000
- Further cash loan received: ₹5,000
The ₹5,000 cannot be examined in isolation. The earlier unpaid amount and the new loan together come to ₹23,000, which crosses the ₹20,000 threshold. The ₹5,000 cash receipt therefore falls within section 269SS, even though it is below ₹20,000 on its own.
Default
Contravention of section 269SS can attract section 271D penalty equal to the amount of the loan, deposit or specified sum accepted in contravention.
Care point
Do not test 269SS merely from individual cash or bank entries. Review the party-wise outstanding balance.
2. Section 269SS — specified sum and property advances
A specified sum includes money received as an advance or otherwise in connection with the transfer of an immovable property, whether or not the transfer ultimately takes place.
This makes property transactions an important Clause 31 checkpoint.
Review separately
- booking advances;
- earnest money;
- sale advances;
- cancelled transactions;
- refunds; and
- adjustments.
Practical trigger
Property transaction → party → amount → mode → ₹20,000 test → subsequent refund/adjustment
Caution
Cancellation of the property transaction does not by itself remove the need to examine the original receipt under section 269SS.
3. Clauses 31(a) and 31(b) — report even when the mode is permitted
This is where one of the most common mistakes occurs.
Example 1
₹10 lakh unsecured loan received from director through NEFT
→ qualifying transaction → 31(a) reporting → permitted mode → no 269SS mode violation
Example 2
₹5 lakh property advance received through RTGS
→ qualifying specified sum → 31(b) reporting → permitted mode → no 269SS mode violation
Therefore:
“Received through bank” is not a reason for leaving 31(a) or 31(b) blank.
The transaction must first be identified for reporting; its mode is then separately examined.
4. Section 269T and Clause 31(c) — repayments made
Section 269T governs repayment of qualifying loans, deposits and specified advances where the statutory threshold is attracted.
Clause 31(c) deals with such repayments made by the assessee.
Example
Loan of ₹8 lakh repaid through RTGS.
The prescribed mode may have been followed. But the qualifying repayment is still relevant for Clause 31(c) reporting.
Correct sequence
Repayment identified → 31(c) reporting → Actual mode recorded → Section 269T compliance tested
Default
Contravention of section 269T can attract section 271E penalty equal to the amount of the loan, deposit or specified advance repaid in contravention.
Care point
Do not examine only the payment voucher. Review:
loan/deposit ledger + earlier outstanding + amount repaid + actual mode
5. Clauses 31(d) and 31(e) — repayment received by the assessee
These clauses are different from 31(c).
They deal with specified repayments received by the assessee where the repayment is received otherwise than through the prescribed modes or through a non-account-payee cheque/draft, as applicable.
Clause 31(d)
Repayment received otherwise than through the prescribed modes specified in the clause.
Clause 31(e)
Repayment received by a cheque or bank draft which is not an account-payee cheque or account-payee bank draft.
Thus:
- 31(c) = qualifying repayment made by the assessee
- 31(d)/(e) = specified repayment received by the assessee
This distinction should be built into the working paper.
6. Permitted-mode segregation — a must-have working paper
Clause 31 should not be worked out simply as:
“Cash transactions identified — therefore Clause 31 completed.”
The working should separately capture the actual mode.
Recommended working format
| Party | Nature | Amount | Clause | Actual mode | Permitted? | Action |
|---|---|---|---|---|---|---|
| Director | Loan received | ₹10 lakh | 31(a) | NEFT | Yes | Report |
| Customer | Property advance | ₹5 lakh | 31(b) | RTGS | Yes | Report |
| Lender | Loan repaid | ₹8 lakh | 31(c) | RTGS | Yes | Report |
| Director | Loan received | ₹5 lakh | 31(a) | Cash | No | Report + 269SS review |
| Lender | Loan repaid | ₹6 lakh | 31(c) | Cash | No | Report + 269T review |
The key principle
A permitted mode may make the transaction compliant; it does not by itself make a qualifying transaction non-reportable under 31(a), 31(b) or 31(c).
7. Do not review Clause 31 through the cash book alone
A proper Clause 31 review should cover:
- loan and deposit ledgers;
- director/shareholder/partner accounts;
- property advances;
- relevant customer/vendor advances;
- cash book;
- bank statements;
- journal entries;
- set-offs and adjustments; and
- party-wise outstanding balances.
ICAI's tax-audit material specifically emphasises obtaining complete borrowing/repayment information and examining relevant advances and supporting evidence.
8. Journal entries and set-offs — important caution
A transaction may be settled through:
- journal adjustment;
- set-off;
- transfer of an asset;
- transfer of a liability;
- conversion; or
- another mode.
Therefore:
No cash movement does not automatically mean no Clause 31 issue.
The substance of the transaction and the applicable statutory provision must be examined.
ICAI material on Clause 31 specifically highlights set-off/book-entry settlement as an area requiring consideration under sections 269SS, 269T and 269ST.
9. Section 269ST — the ₹2 lakh test
Section 269ST applies to the receipt of any sum of ₹2 lakh or more otherwise than by the prescribed modes, subject to its statutory exclusions.
There are three separate tests:
Test 1 — Person + day
Aggregate receipts of ₹2 lakh or more from a person in a day.
Test 2 — Single transaction
₹2 lakh or more in respect of a single transaction.
Test 3 — One event or occasion
₹2 lakh or more relating to one event or occasion from a person.
Example
Customer pays ₹1.20 lakh + ₹90,000 on the same day.
Individual payments are below ₹2 lakh. Aggregate = ₹2.10 lakh.
The relevant 269ST test therefore has to be examined.
Caution
Do not assume that splitting a large receipt into smaller instalments avoids section 269ST. The statutory tests specifically address aggregation, single transactions and one event or occasion.
10. Clauses 31(ba) to 31(bd)
These clauses separately capture high-value receipts and payments of ₹2 lakh or more where the prescribed mode requirements are not followed.
Receipts and payments through permitted modes are not reported under these clauses.
The working should therefore identify:
Person → date → amount → aggregate → transaction/event → mode → exception → Clause 31
The distinction between:
- receipt and payment; and
- prescribed and non-prescribed mode
should not be lost.
11. Statutory exceptions — always check before calling it a default
Sections 269SS, 269T and 269ST contain specified exceptions.
Depending upon the provision and conditions, these cover transactions involving entities such as:
- Government;
- banking companies;
- post office savings banks;
- co-operative banks;
- specified Government companies/corporations; and
- notified persons, institutions or classes.
Certain agricultural-income cases and specified co-operative agricultural lending institutions also have special provisions under section 269SS.
Therefore:
Amount alone does not establish a violation. Nature, parties, mode and statutory exception must all be checked.
12. Penalty exposure
| Section | Default | Potential penalty |
|---|---|---|
| 271D | Contravention of 269SS | Amount of loan/deposit/specified sum |
| 271E | Contravention of 269T | Amount of loan/deposit/specified advance repaid |
| 271DA | Contravention of 269ST | Amount received in contravention |
The potential exposure can therefore be 100% of the relevant amount.
That makes Clause 31 a year-end risk review, not merely a form-filling exercise.
13. Reasonable cause — protection, not planning
The law provides a reasonable-cause defence in appropriate cases.
But the better sequence is:
Prevent the default → document the circumstances → preserve evidence → examine reasonable cause if required.
The genuineness of the transaction alone should not be treated as a substitute for compliance with sections 269SS, 269T or 269ST.
14. Six practical red flags
- Related-party loans — Director, shareholder and partner accounts require special scrutiny.
- Property advances — Review receipt, cancellation, refund and adjustment.
- Cash repayment — A genuine loan does not automatically make cash repayment permissible.
- Split receipts — Apply all relevant 269ST aggregation tests.
- Journal settlements — Do not ignore them merely because the cash book is unaffected.
- Old outstanding balances — Earlier unpaid amounts can affect the ₹20,000 test.
15. The year-end Clause 31 checklist
Before finalising Form 3CD:
- Extract all loans and deposits accepted
- Extract specified sums/property advances
- Extract all qualifying repayments
- Review party-wise opening and outstanding balances
- Reconcile cash and bank transactions
- Review journal/set-off entries
- Apply ₹20,000 tests under 269SS/269T
- Apply ₹2 lakh tests under 269ST
- Identify the correct Clause 31 sub-clause
- Record the actual mode separately
- Check statutory exceptions
- Identify non-compliance and penalty exposure
- Preserve confirmations and supporting evidence
The simplest way to remember Clause 31
₹20,000
- Loan / deposit / specified sum accepted → 269SS
- Loan / deposit / specified advance repaid → 269T
₹2 lakh
- High-value receipt/payment → 269ST
And always remember:
REPORT FIRST. MODE SECOND. COMPLIANCE THIRD.
(For 31(ba) to 31(bd), 31(d) and 31(e), the mode determines whether the transaction falls within the reporting requirement.)
CA Sahuja Perspective
Clause 31 should never be completed by asking only:
“Was there any cash transaction?”
The better question is:
“What qualifying transaction took place, which Clause 31 applies, what was the actual mode, and was that mode permitted?”
For AY 2026-27, the safest approach is a two-layer review:
Layer 1 — REPORTING
Identify every qualifying transaction and report it under the appropriate Clause 31.
Layer 2 — COMPLIANCE
Test its mode, aggregation, exception and penalty exposure.
The practical lesson is simple:
A permitted banking/electronic mode can make a qualifying transaction compliant; it does not, by itself, make the transaction non-reportable under Clause 31(a), 31(b) or 31(c).
