Clause 31 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Clause 31(a) reports each loan or deposit taken or accepted above the section 269SS limit of Rs 20,000, with six particulars per lender — including the Note 1 code, which brings journal entries and asset transfers into the report.
From the ICAI Guidance Note on Tax Audit (Revised 2026), the Eleventh and, by ICAI's own statement, concluding edition under the Income-tax Act, 1961. For tax years under the Income-tax Act, 2025 the corresponding provisions must be identified afresh, and the particulars move to Form No. 26 under rule 47 of the Income-tax Rules, 2026.
The threshold clause 31 tests — three ways to reach it
Paragraph 55.1: section 269SS prohibits taking or accepting any loan, deposit or specified sum otherwise than by an account payee cheque, account payee bank draft, use of the electronic clearing system through a bank account, or such other electronic mode as may be prescribed — collectively the approved banking channels — if:
- (a) the amount of such loan, deposit or specified sum, or the aggregate of them; or
- (b) on the date of taking or accepting it, any earlier loan, deposit or specified sum from the same depositor remaining unpaid — whether repayment has fallen due or not — the amount or aggregate remaining unpaid; or
- (c) the amount at (a) together with the amount at (b),
is Rs 20,000 or more.
The exception: for a deposit accepted by, or a loan taken from, a Primary Agricultural Credit Society or a Primary Co-operative Agricultural and Rural Development Bank from or by its members, a higher limit of Rs 2 lakh applies.
The other electronic modes were prescribed by Rule 6ABBA, notified by Notification No. 8/2020/F. No. 370142/14/2019-TPL dated 29 January 2020, with effect from 1 September 2019: credit card, debit card, net banking, IMPS, UPI, RTGS, NEFT and BHIM Aadhaar Pay.
Limb (b) tests the outstanding balance from the same person, not the new receipt. Paragraph 55.8 spells out the consequence: if the total from a person is Rs 20,000 or more but each individual item is less than Rs 20,000, the information is still required in respect of all such entries — starting from the entry at which the balance reaches Rs 20,000 or more and continuing until the balance goes below Rs 20,000. So clause 31 requires a running-balance test per person, not a per-transaction test.
Who is outside section 269SS
Paragraph 55.2: the first proviso excludes loans or deposits taken from, or accepted by, 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 section 2(45) of the Companies Act, 2013; and any other notified institution, association or body.
And a reporting exclusion of a different kind, from paragraph 55.3: particulars at (a) and (b) need not be given in the case of a Government company, a banking company or a corporation established by a Central, State or Provincial Act — that is, where the assessee itself is one of those.
Paragraph 55.5(x) closes an opening that is often assumed: co-operative societies — including credit co-operative societies and housing societies — are not exempt from sections 269SS and 269T unless they qualify as "co-operative banks" under the Banking Regulation Act, 1949 and hold a valid licence from the Reserve Bank of India. Their cash or journal-entry acceptances above the threshold are reportable.
The nine situations paragraph 55.5 resolves
| Situation | Treatment |
|---|---|
| Sale proceeds collected by a selling agent | Not a loan or deposit |
| Mixed account | Segregate the loan and deposit transactions from the other transactions, and report the former |
| Opening credit balance of a loan taken in earlier years | Not specifically required to be disclosed — but the opening balances must be taken into consideration when giving the maximum amount outstanding, and when reporting acceptance and repayment |
| Interest-free loans | Reportable — the information must still be given |
| Security deposits against contracts | Covered by the definition of "deposit" — reportable. But an amount retained by the contractee against performance is not, because the amount is not received |
| Transfer entries or journal entries | Constitute acceptance otherwise than by account payee cheque — reportable. But entries with a supplier or customer on account of purchase or sale of goods or services are not loans or deposits |
| Interest accrued and credited to a deposit or loan account | Not required to be reported |
| Share application money supported by appropriate documentation | Neither deposit nor loan; subsequent allotment or repayment as part of the allotment process does not alter its character, so sections 269SS and 269T are not attracted — Rugmini Ram Ragav Spinners P. Ltd. 304 ITR 417 (Mad), IP India P. Ltd. 343 ITR 353 and Numero Uno Financial Services P. Ltd. 345 ITR 84 (Del). A contrary view is in Bhalotia Engineering Works (P) Ltd. 275 ITR 399 |
| Co-operative societies without an RBI licence | Not exempt — reportable |
The Guidance Note also directs attention to CIT v. Idhayam Publications Ltd. (2006) 285 ITR 221 (Madras).
The six particulars clause 31(a) requires
Paragraph 55.6: clause 31(a) requires six specific particulars in respect of each loan or deposit:
- Name, address and PAN or Aadhaar number of the lender or depositor, if available with the assessee;
- Amount of each loan or deposit taken or accepted, and the code of the nature of such amount as given in Note 1, from a dropdown;
- whether the loan or deposit was squared up during the previous year;
- the maximum amount outstanding in the account at any time during the previous year;
- whether it was taken or accepted by cheque, bank draft or use of the electronic clearing system through a bank account; and
- where by cheque or draft, whether it was an account payee cheque or an account payee bank draft.
Paragraph 55.7: the auditor should obtain these details from the assessee for each reportable loan or deposit and verify that the amount reported is as per the records and evidence available. Paragraph 55.10: he should obtain and verify the code-wise details of each receipt.
Where verification runs out — the suggested comment
Paragraph 55.9: there will be practical difficulties in verifying whether a loan or deposit was taken by account payee cheque or draft. The auditor should verify against such evidence as may be available, and in the absence of satisfactory evidence should make a suggested comment in his report:
"It is not possible for me/us to verify whether loans or deposits have been taken or accepted otherwise than by an account payee cheque or account payee bank draft, as the necessary evidence is not in the possession of the assessee".
"Loan details were reported on a consolidated basis without mentioning the names of the respective lenders. Observations/qualifications in Form 3CA/3CB were reproduced from the Guidance Note without appropriate modification to suit the audit report." The second finding is a caution about the suggested comment above: it is a template, and copying it unaltered into a report where the evidence position is different is itself a defect in the clause 31 reporting.
The clause 31(a) working paper
Paragraph 55.11 recommends, in the utility's format: name of the lender or depositor · address · PAN or Aadhaar, if available · amount taken or accepted · code of the nature of the amount per Note 1 · whether squared up during the year · maximum amount outstanding at any time during the year · whether taken otherwise than by account payee cheque or draft.
Worked example
| Transaction | Clause 31(a) |
|---|---|
| Rs 3,00,000 loan received by RTGS | Report — the clause asks for particulars of each loan above the limit, with the mode stated |
| Four cash receipts of Rs 6,000 each from one person, balance reaching Rs 24,000 | Report every entry from the point the balance reached Rs 20,000 until it fell below |
| Loan of Rs 50,000 created by a journal entry against a purchase ledger balance | Report, with the Journal Entry code from Note 1 |
| Trade payable settled by a journal entry with a supplier | Not a loan or deposit |
| Interest-free loan from a director | Report |
| Interest credited to a deposit account during the year | Not reported |
| Security deposit received from a contractor | Report — within "deposit" |
| Share application money with documentation, later allotted | Not reported, on the Madras and Delhi High Court view |
Audit checklist
- Run a running-balance test per person, not a per-transaction test.
- Include the unpaid earlier balance limb in the threshold computation.
- Take opening balances into account for the maximum outstanding column.
- Include journal entries, transfer entries, interest-free loans and security deposits.
- Exclude interest credited, supplier and customer trade entries, retention money, and documented share application money.
- Apply the Rs 2 lakh limit only to PACS and PCARD member transactions.
- Check whether a co-operative society holds an RBI licence as a co-operative bank before treating it as exempt.
- Report the Note 1 code against each transaction and give name, address and PAN for every lender.
- Where the account payee position cannot be verified, use the suggested comment adapted to the facts.
Common mistakes
- Reporting on a consolidated basis without lender names — the TAQRB finding.
- Testing each receipt against Rs 20,000 instead of the running balance.
- Omitting journal-entry loans because no money moved.
- Treating a co-operative society as exempt without an RBI licence.
- Copying the suggested comment verbatim where the evidence position differs.