{"id":825,"date":"2015-12-19T12:41:10","date_gmt":"2015-12-19T12:41:10","guid":{"rendered":"http:\/\/carajput.com\/blog\/?p=825"},"modified":"2025-09-28T01:38:09","modified_gmt":"2025-09-27T20:08:09","slug":"cash-credit-or-overdraft-ac-vs-tax-recovery","status":"publish","type":"post","link":"https:\/\/carajput.com\/blog\/cash-credit-or-overdraft-ac-vs-tax-recovery\/","title":{"rendered":"Cash Credit or Overdraft A\/c Vs Tax Recovery"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_58 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Page Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-69e46bd5e219a\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #000000;color:#000000\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #000000;color:#000000\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69e46bd5e219a\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/carajput.com\/blog\/cash-credit-or-overdraft-ac-vs-tax-recovery\/#Cash_Credit_or_Overdraft_Ac_Vs_Tax_Recovery\" title=\"Cash Credit or Overdraft A\/c Vs Tax Recovery\">Cash Credit or Overdraft A\/c Vs Tax Recovery<\/a><ul class='ez-toc-list-level-3'><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/carajput.com\/blog\/cash-credit-or-overdraft-ac-vs-tax-recovery\/#Decision_of_the_Calcutta_High_Court\" title=\"Decision of the Calcutta High Court\">Decision of the Calcutta High Court<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/carajput.com\/blog\/cash-credit-or-overdraft-ac-vs-tax-recovery\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/carajput.com\/blog\/cash-credit-or-overdraft-ac-vs-tax-recovery\/#RBI_NEW_OPENING_OF_CURRENT_ACCOUNTS_BY_BANKS_WHO_USING_OD_OR_CC_LIMIT%E2%80%93_NEED_FOR_DISCIPLINE\" title=\"RBI: NEW OPENING OF CURRENT ACCOUNTS BY BANKS\u00a0 WHO USING OD OR CC LIMIT\u2013 NEED FOR DISCIPLINE\">RBI: NEW OPENING OF CURRENT ACCOUNTS BY BANKS\u00a0 WHO USING OD OR CC LIMIT\u2013 NEED FOR DISCIPLINE<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/carajput.com\/blog\/cash-credit-or-overdraft-ac-vs-tax-recovery\/#What_is_basic_difference_between_Cash_Credit_Vs_overdraft\" title=\"What is basic difference between Cash Credit Vs overdraft ?\">What is basic difference between Cash Credit Vs overdraft ?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/carajput.com\/blog\/cash-credit-or-overdraft-ac-vs-tax-recovery\/#Quick_Tip_Cash_Credit_CC_vs_Overdraft_OD\" title=\"Quick Tip: Cash Credit (CC) vs Overdraft (OD)\">Quick Tip: Cash Credit (CC) vs Overdraft (OD)<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<p><a href=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/05\/How-to-file-ONLINE-RETURN.png\"><img loading=\"lazy\" decoding=\"async\" class=\" wp-image-6057\" src=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/05\/How-to-file-ONLINE-RETURN.png\" alt=\"www.carajput.com;Income Tax Return\" width=\"918\" height=\"653\" srcset=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/05\/How-to-file-ONLINE-RETURN.png 472w, https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/05\/How-to-file-ONLINE-RETURN-300x214.png 300w\" sizes=\"(max-width: 918px) 100vw, 918px\" \/><\/a><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Cash_Credit_or_Overdraft_Ac_Vs_Tax_Recovery\"><\/span><span style=\"color: #000080;\">Cash Credit or Overdraft A\/c Vs Tax Recovery<\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><strong><span style=\"color: #0000ff;\">Query : <\/span><\/strong><span style=\"color: #0000ff;\"><span style=\"color: #000000;\">Why cash credit or overdraft a\/c can&#8217;t be attached for tax roecvery<\/span><\/span><span style=\"color: #000000;\">?<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\"><strong>Answer:<\/strong><\/span> Cash Credit Account or Overdraft Account : In case of Cash Credit (&#8216;CC&#8217;) or Overdraft (&#8216;OD&#8217;) account customer is always in debit balance. There is no stage at which the bank is a debtor to its customer, nor at any point of time at which it holds any money. Thus, CC\/OD accounts cannot be attached. However, tax authorities insist on attachment of CC\/OD accounts of taxpayers to recover tax dues.<\/p>\n<p style=\"text-align: justify;\">Dispute : The <a href=\"https:\/\/carajput.com\/blog\/taxes-on-income-received-from-blogging-under-income-tax\/\">income-tax<\/a> department is insisting on attachment of Cash Credit (CC) or Overdraft (OD) accounts of taxpayers to recover income-tax dues. Now following questions arise \u2013<\/p>\n<ol style=\"text-align: justify;\">\n<li>a) Whether AO or Tax Recovery Officer could attach CC\/OD accounts of taxpayers to recover tax dues?<\/li>\n<li>b) Whether bank could be said to be holding unutilized limit of CC\/OD on behalf of its customers?<\/li>\n<\/ol>\n<p style=\"text-align: justify;\">Judicial precedents<\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #0000ff;\"><strong>Decision of the Madras High Court : <\/strong><\/span>In case of K.M. Adam v ITO [1958] 33 ITR 26 (MAD.) the Ld. Counsel of revenue tried to justify attachment of CC\/OD account on following basis &#8220;Immediately the customer drew a cheque on his overdraft account, which the bank had by reason of the arrangement with the customer to honour, the money which it thus decides to pay to its customer becomes at once the customer&#8217;s money which, between the time when the bank makes up its mind to pay and the time of the actual payment, it holds on the customer&#8217;s account.&#8221;<\/p>\n<p style=\"text-align: justify;\">The Madras High Court was of the view that this approach was too metaphysical. If this theory would be applied to simple loan transaction, then it would be deemed that lender is holding sum for or on account of would be borrower whenever he makes up his mind to lend money and agrees to do so. When a bank lends money on overdraft and the customer is always in debit there is no stage at which the bank is a debtor to its customer, nor any point of time at which it holds any money on his account.<\/p>\n<p style=\"text-align: justify;\">Thus, the Madras High Court has held that unless the bank is a debtor there could be no attachment; an unutilised overdraft account does not render the bank a debtor in any sense and, therefore, the bank is not a person from whom money is due to the customer.<\/p>\n<h3 style=\"text-align: justify;\"><span class=\"ez-toc-section\" id=\"Decision_of_the_Calcutta_High_Court\"><\/span><span style=\"color: #000080;\"><strong>Decision of the Calcutta High Court<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p style=\"text-align: justify;\">In case of P. C. Chandra &amp; Sons (India) Ltd. v. Dy. CIT [2015] 63\u00a0taxmann.com\u00a038 (Calcutta) the judgment of K.M. Adam (Supra) was followed to hold that tax authorities could not attach cash credit account of the taxpayers to recover tax dues.<\/p>\n<p style=\"text-align: justify;\">Thus, on basis of aforesaid observation of the High Court it could be concluded that &#8211;<br \/>\nBank could not be deemed to be holding unutilized balance of CC\/OD account on behalf of its customers; and, Tax authorities cannot attach OD\/CC account of taxpayers.<\/p>\n<h3 style=\"text-align: justify;\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span><span style=\"color: #000080;\">Conclusion<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p style=\"text-align: justify;\">Though tax authorities don&#8217;t have powers to attach OD\/CC account of a taxpayer, yet it can attach current account, saving account or fixed deposit account as in such cases bank could be said to be debtor of assessee or holding money on behalf of the assessee. However, tax authorities cannot prematurely close the FD and demand its encashment.<\/p>\n<p style=\"text-align: justify;\">Thus, tax authorities should discontinue its annoying practice of insisting on the attachment of OD\/CC accounts of taxpayers to recover tax dues.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"RBI_NEW_OPENING_OF_CURRENT_ACCOUNTS_BY_BANKS_WHO_USING_OD_OR_CC_LIMIT%E2%80%93_NEED_FOR_DISCIPLINE\"><\/span><span style=\"color: #000080;\"><a style=\"color: #000080;\" href=\"https:\/\/www.caindelhiindia.com\/blog\/banking-complaints-with-rbis-ombudsman\/\"><strong><em><u>RBI<\/u><\/em><\/strong><\/a><a style=\"color: #000080;\" href=\"https:\/\/carajput.com\/publications\/rbi-new-opening-of-current-accounts-by-banks-who-using-od-or-cc-limit-need-for-discipline.pdf\"><strong><em><u>: NEW OPENING OF CURRENT ACCOUNTS BY BANKS\u00a0 WHO USING OD OR CC LIMIT\u2013 NEED FOR DISCIPLINE<\/u><\/em><\/strong><\/a><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><a href=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/12\/0001.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-11383\" src=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/12\/0001-1024x724.jpg\" alt=\"\" width=\"914\" height=\"646\" srcset=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/12\/0001-1024x724.jpg 1024w, https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/12\/0001-300x212.jpg 300w, https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/12\/0001-768x543.jpg 768w\" sizes=\"(max-width: 914px) 100vw, 914px\" \/><\/a><\/p>\n<p>The RBI perceives that borrowers misuse money via multiple current accounts with various banks, despite the prevailing regulations and penal provisions.<\/p>\n<p>The Guidelines for the monitoring of cash flows and controlling the use of the current accounts and for the substitution of NOCs are issued.<\/p>\n<p>Customers now fall into three categories when applying for open current accounts. Current accounts cannot be opened to banks with customers that have existing bank credit facilities as cash (CC) or excessive (OD) credit systems. The CC\/OD accounts must route transactions.<\/p>\n<p>If a bank&#8217;s borrower&#8217;s exposure is below 10% of its bank system&#8217;s exposure to that borrower, CC and OD accounts can be opened. Debits from these accounts may be held only by the borrower&#8217;s CC or OD account held at a bank where the banking system is 10 percent or more exposed to the borrower.<\/p>\n<p>Current accounts may be opened by banks with clients that have current credit facilities in the banking system but have no CC or OD facility. When the borrower&#8217;s exposure to a banking system amounts to 500 million or greater, only the corporate bank with a compulsory escrow mechanism may open the current accounts. Loan banks may open account collection provided that money is transferred to escrow accounts in these accounts only. Such borrowers cannot open banks that are not lending.<\/p>\n<p>Banks that have no banking credit facility can open up current accounts under their due diligence policies with customers. In determining the overall exposure of the bank system, the RBI has clarified that only the exposure of scheduled commercial banks and payment banks is included. The other financial institutions are excluded from all NBFC exposure.<\/p>\n<p>Every lending bank and other account-holding bank must monitor the current accounts, CC, and OD accounts and comply with the guidelines on a six-month basis.<\/p>\n<p>The guides and exemption guidelines are a welcome step towards strengthening the banking system by implementing better discipline in terms of reimbursement to large borrowers and preventing misuse of funds. The implementation, however, presents bankers with a challenge.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"What_is_basic_difference_between_Cash_Credit_Vs_overdraft\"><\/span><span style=\"color: #000080;\"><strong>What is basic difference between Cash Credit Vs overdraft ?<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-30089\" src=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/12\/CC-VS.-OD.-.jpg\" alt=\"CC VS. OD.\" width=\"942\" height=\"825\" srcset=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/12\/CC-VS.-OD.-.jpg 579w, https:\/\/carajput.com\/blog\/wp-content\/uploads\/2015\/12\/CC-VS.-OD.--300x263.jpg 300w\" sizes=\"(max-width: 942px) 100vw, 942px\" \/><\/p>\n<table>\n<thead>\n<tr>\n<td><span style=\"color: #000080;\"><strong>Feature<\/strong><\/span><\/td>\n<td><span style=\"color: #000080;\"><strong>Cash Credit (CC)<\/strong><\/span><\/td>\n<td><span style=\"color: #000080;\"><strong>Overdraft (OD)<\/strong><\/span><\/td>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Purpose<\/td>\n<td>For business working capital (raw materials, inventory, daily ops)<\/td>\n<td>For short-term liquidity needs (personal or business)<\/td>\n<\/tr>\n<tr>\n<td>Eligibility<\/td>\n<td>Against stock, receivables, business assets<\/td>\n<td>Against FDs, salary\/savings account, property, securities<\/td>\n<\/tr>\n<tr>\n<td>Users<\/td>\n<td>Businesses (traders, manufacturers)<\/td>\n<td>Individuals &amp; businesses<\/td>\n<\/tr>\n<tr>\n<td>Limit Determination<\/td>\n<td>Based on drawing power from stock\/receivables after margin<\/td>\n<td>Based on bank relationship, income, security, account history<\/td>\n<\/tr>\n<tr>\n<td>Tenure<\/td>\n<td>Short-term (12 months), reviewed annually<\/td>\n<td>Short or long-term, renewed per agreement<\/td>\n<\/tr>\n<tr>\n<td>Interest Charged<\/td>\n<td>On utilized amount only, not full limit<\/td>\n<td>Same \u2014 only on amount used<\/td>\n<\/tr>\n<tr>\n<td>Flexibility<\/td>\n<td>Structured for business cash flow<\/td>\n<td>More flexible, usable for personal or business<\/td>\n<\/tr>\n<tr>\n<td>Documentation<\/td>\n<td>Requires detailed financials, GST returns, stock statements<\/td>\n<td>Simpler, especially if backed by FD or salary account<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<h3><span class=\"ez-toc-section\" id=\"Quick_Tip_Cash_Credit_CC_vs_Overdraft_OD\"><\/span><span style=\"color: #000080;\"><strong>Quick Tip: Cash Credit (CC) vs Overdraft (OD)<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ul>\n<li>Choose CC if you&#8217;re a business needing structured working capital.<\/li>\n<li>Choose OD if you need flexible short-term funds with simpler paperwork.<\/li>\n<\/ul>\n<p style=\"text-align: justify;\">For query or help, contact: <a href=\"mailto:singh@carajput.com\">singh@carajput.com<\/a>\u00a0or call at 9555555480<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Cash Credit or Overdraft A\/c Vs Tax Recovery Query : Why cash credit or overdraft a\/c can&#8217;t be attached for tax roecvery? Answer: Cash Credit Account or Overdraft Account : In case of Cash Credit (&#8216;CC&#8217;) or Overdraft (&#8216;OD&#8217;) account customer is always in debit balance. There is no stage at which the bank is &hellip;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9],"tags":[3851,3848,3850,9842],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/posts\/825"}],"collection":[{"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/comments?post=825"}],"version-history":[{"count":5,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/posts\/825\/revisions"}],"predecessor-version":[{"id":4721,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/posts\/825\/revisions\/4721"}],"wp:attachment":[{"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/media?parent=825"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/categories?post=825"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/tags?post=825"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}