Journal Entries 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.
The Note 1 code list at the end of clause 31 brings journal entries, transfers of assets and liabilities, conversions and "any other mode" into the reporting — and every individual transaction must carry its own code, even from the same person.
From the ICAI Guidance Note on Tax Audit (Revised 2026), the 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 twelve codes
Note 1 at the end of clause 31 gives the code for the nature of the amount, receipt or repayment:
| Sr. | Nature of amount or receipt or repayment | Code |
|---|---|---|
| 1 | Cash payment | A |
| 2 | Cash receipt | B |
| 3 | Payment through non account payee cheque | C |
| 4 | Receipt through non account payee cheque | D |
| 5 | Transfer of asset | E |
| 6 | Transfer of liability | F |
| 7 | Conversion of assets | G |
| 8 | Conversion of liabilities | H |
| 9 | Journal entry | I |
| 10 | Journal entry | J |
| 11 | Any other mode | K |
| 12 | Any other mode | L |
Paragraph 57.13 explains where each list applies: the codes cover the modes of receipt of a loan, deposit or specified sum, required at clause 31(a) and clause 31(b); and the modes of repayment of a loan, deposit or specified advance, required at clause 31(c).
Transaction by transaction, journal entries included
"Each individual transaction of receipt of loan or deposit or specified sum and individual transaction of loan or deposit or specified advance repaid has to be reported separately by selecting the code from the drop down available, even if it is from the same person."
That is the answer to the TAQRB finding on clause 31(a) that "loan details were reported on a consolidated basis without mentioning the names of the respective lenders". The code requirement makes consolidation impossible in principle: two receipts from the same lender, one in cash and one by a journal entry, carry different codes and cannot be shown as one line. Journal entries in particular have to be listed one by one.
What the code list actually widens
Paragraph 57.13 states the consequence plainly:
"The reporting is required for receipt/repayment of loan or deposit by way of cash or non-account payee cheque. The Code list inserted by way of Note 1 signifies that receipt of loan or deposit or specified sum or repayment of loan or deposit or specified advance by way of journal entry, transfer of asset/liability or conversion of asset/liability or any other mode would also require reporting under clause 31(a)/31(b)/31(c), as the case may be, where it exceeds the specified threshold."
Codes A to D cover cash and non-account-payee cheques — the transactions most people associate with sections 269SS and 269T. Codes E to L cover everything else: asset and liability transfers, conversions, journal entries in both directions, and any other mode. A report showing only cash receipts and cash repayments, with no journal entries at all, has answered a narrower question than clause 31 asks.
The three examples the Guidance Note gives
| Transaction | Reporting |
|---|---|
| A loan repaid by transfer of an asset such as machinery or land | Clause 31(c), under the Transfer of asset code |
| A loan converted into equity shares | Clause 31(c) — reporting is required |
| A non-banking finance company or asset reconstruction company acquires loan assets of a bank, the consideration being wholly or partly in the form of security receipts | Clause 31(a) by the acquirer, in relation to the loan accepted, under the relevant Note 1 code |
The third example is worth dwelling on. It is not a borrowing in any ordinary sense — it is a portfolio acquisition settled in instruments — yet the Guidance Note treats it as a loan accepted by the acquirer, reportable at clause 31(a) under "any other mode". Codes E to L, and the journal entries codes in particular, are what make such transactions visible in the report at all.
The completeness test
Paragraph 57.13 closes with the procedure that ties the codes to the audit:
"The tax auditor must check the complete movement of loans and deposits, including the outstanding loan and deposits at the beginning of the year, loans taken and deposits accepted during the year and loans and deposits repaid during the year. He should carefully examine the books of account and check if the loans taken/repaid and deposits accepted/repaid are through any of the modes as indicated in the code list above. If the same have not been reported in clause 31, he may point out the same in his observations in Form No.3CA/Form No.3CB."
So the test is a movement reconciliation — opening balance, additions, repayments, closing balance, per party — with each movement classified against the twelve codes. Anything that moved by a coded mode and is not in clause 31 becomes an observation.
Clauses 31(d) and 31(e) — repayments received
Clauses 31(a) to (c) look at what the assessee took and repaid. Clauses 31(d) and 31(e) look at what it received back as a lender:
| Clause | What is reported |
|---|---|
| 31(d) | Repayment of a loan, deposit or specified advance above the section 269T limit received otherwise than by a cheque, bank draft or use of the electronic clearing system through a bank account — with the name, address and PAN or Aadhaar of the payer and the amount |
| 31(e) | Repayment above the same limit received by a cheque or bank draft which is not an account payee cheque or account payee bank draft — with the same payer particulars and the amount |
Paragraphs 58.1 and 59.1: the particulars need not be given in the case of a repayment of any loan or deposit or specified advance taken or accepted from the Government, a Government company, a banking company or a corporation established by a Central, State or Provincial Act.
Paragraphs 58.2 and 59.2 repeat the point made at clause 31(c): section 269T does not exclude Government companies, banking companies or such corporations from the scope of its applicability, so where the assessee is one of them, details of repayments made by it are to be shown. And in both clauses the requirement applies to repayments together with interest which are in excess of Rs 20,000.
Paragraphs 58.3 and 59.3 provide the same practical relief as elsewhere in clause 31: where repayments are voluminous and it is not possible to verify the mode of each repayment received from the bank statement, it is desirable to obtain a suitable certificate from the assessee — and where the tax auditor has verified on the basis of that certificate, the same shall be reported as an observation in clause (3) of Form No. 3CA or clause (5) of Form No. 3CB.
Worked example
A company's loan movement for the year, coded:
| Movement | Code | Clause |
|---|---|---|
| Rs 8,00,000 received in cash from a director | B — cash receipt | 31(a) |
| Rs 15,00,000 loan created by crediting a group company's account by journal entry | J — journal entry credit | 31(a) |
| Rs 6,00,000 booking advance on an office unit, received by cheque that is not account payee | D — receipt through non account payee cheque | 31(b) |
| Rs 20,00,000 loan settled by transferring a vehicle fleet | E — transfer of asset | 31(c) |
| Rs 50,00,000 loan converted into equity | H or K as applicable | 31(c) |
| Rs 3,00,000 received back in cash on a loan the company had given | — | 31(d) |
| Rs 4,00,000 received back by bearer cheque | — | 31(e) |
Audit checklist
- Build a party-wise movement reconciliation: opening balance, receipts, repayments, closing balance.
- Classify every movement against the twelve Note 1 codes, not just the cash ones.
- Report each transaction separately with its own code, even from the same person.
- Scan the ledgers specifically for journal entries, asset and liability transfers, conversions and settlements in instruments.
- Answer clauses 31(d) and 31(e) from the receipts side, with payer name, address and PAN.
- Apply the Rs 20,000 including interest test to 31(d) and 31(e).
- Where the assessee is a Government or banking company, report its own repayments.
- Where reliance is placed on a certificate, disclose it as an observation.
- Point out in the observations anything that moved by a coded mode and was not reported at clause 31.
Common mistakes
- Treating clause 31 as a cash report, ignoring codes E to L and omitting journal entries entirely.
- Consolidating transactions from one party across different modes.
- Missing loan-to-equity conversions and settlements by asset transfer.
- Leaving clauses 31(d) and 31(e) blank because the assessee thinks of itself only as a borrower.
- Skipping the movement reconciliation, so unreported coded transactions never surface.