Corporate and Other Laws · Acceptance of Deposits by Companies

Meaning of Deposit and Exempted Deposits (Section 2(31) and Rule 2(1)(c))

Updated 4 October 2026 · Fact-checked

A deposit under Section 2(31) includes any receipt of money by way of deposit or loan or in any other form by a company, except categories prescribed in Rule 2(1)(c) of the Deposit Rules. To solve, test the receipt against the exempted list: check lender, purpose and conditions. If it fits, it is not a deposit.

Understand Meaning of Deposit and Exempted Deposits

Companies often take money from outsiders. Some of it is ordinary business funding, such as a bank loan or a customer's advance. Some of it is borrowing from the public. The Act regulates the second kind, because depositors are ordinary people who can lose savings.

Section 2(31) defines deposit very widely. It "includes any receipt of money by way of deposit or loan or in any other form by a company, but does not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India". So the starting point is simple: every receipt of money is a deposit unless it is carved out.

The carve-outs are in Rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014. They are called exempted deposits (receipts that are not treated as deposits). The Act text only says that categories may be prescribed. The list itself is in the Rules, so the entries below are not verified against the Act text. Check their exact wording in your study material. Think of them in groups:

Who gave it: Central or State Government, statutory authorities (only as the Rule words that entry), banks, public financial institutions, insurance companies, foreign governments and foreign persons (subject to FEMA), another company.
Why it was given: commercial paper issued under RBI guidelines, share application money pending allotment, advances and security deposits in the ordinary course of business.
Special cases: money from a director, or from a relative of a director of a private company, with a written declaration; promoters' loans required by a lender; Nidhi company receipts (only for amounts accepted as per the Nidhi Rules); chit subscriptions (only as per the Chit Funds Act); collective investment scheme money (only as per the applicable SEBI regulations).

Most exemptions carry conditions. Take director's money. Rule 2(1)(c)(viii) of the Deposit Rules, 2014 covers "any amount received from a person who, at the time of the receipt of the amount, was a director of the company or a relative of the director of the private company". The proviso then requires that person to furnish, at the time of giving the money, a declaration in writing that the amount is not being given out of funds acquired by him by borrowing or accepting loans or deposits from others. It also says the company shall disclose the details of the money so accepted in the Board's report. This rule is not part of the Act text supplied for this page, so confirm its exact wording in the Rules or your study material before you rely on it.

A business advance is exempt only if it is adjusted against the supply within 365 days. Missing the condition means the exemption fails and the money is a deposit.

Every exemption is subject to the exact wording of the Rule. The summaries on this page are for learning. Do not stretch an entry beyond what it says. For example, an exempted category for a Nidhi, a chit fund or a collective investment scheme covers only the money received under that special law, not every receipt of such an entity.

The exempted list is long and the Rules are amended from time to time. Learn the main items and their conditions from your study material. In the exam, always read who gave the money and on what terms.

Key rules to remember

Definition of deposit, Section 2(31): Deposit = any receipt of money by way of deposit or loan or in any other form by a company − categories prescribed as exempt; Wide definition. Receipt is a deposit by default; only prescribed categories are excluded. Prescribed categories are in Rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014.
Money from Government, banks and institutions: Exempt: amounts from Central/State Government or a statutory authority; loans or facilities from banking companies, SBI, notified banking institutions, co-operative banks; loans or financial assistance from public financial institutions or insurance companies; The lender's identity decides exemption. A loan from a bank is exempt. A loan from a private individual is not, unless another exemption applies. For statutory authorities and other entries, follow the exact wording of the Rule.
Money from another company: Amount received by a company from another company = exempt, as per the wording of Rule 2(1)(c); Applies to receipts from a company. It does not cover receipts from individuals, firms or LLPs.
Foreign sources: Exempt: amounts from foreign governments, foreign or international banking and financial institutions, foreign collaborators, foreign bodies corporate, foreign citizens, and persons resident outside India, subject to FEMA; The FEMA condition is part of the exemption.
Commercial paper and share application money: Exempt: amount against commercial paper or other instruments issued under RBI guidelines; share application money held pending allotment under a valid offer; Application money is exempt only while it is appropriated against the amount due on allotment or refunded as the law requires.
Director's money, Rule 2(1)(c)(viii): Exempt: any amount received from a person who, at the time of receipt, was a director of the company or a relative of the director of the private company; the person must furnish, at the time of giving the money, a written declaration that the amount is not being given out of funds acquired by him by borrowing or accepting loans or deposits from others; the company shall disclose the details in the Board's report; This rule is in the Deposit Rules, 2014, not in the Act text supplied for this page, so it is not verified against that text. Check the exact wording in your study material. A relative of a director of a public company is not covered on this wording.
Business advances and security deposits: Exempt: advance for supply of goods or services if adjusted within 365 days of receipt; security deposit for performance of a supply contract; If the advance is not adjusted within 365 days, it is treated as a deposit on expiry of that period. The Rule also has a proviso on advances; check its exact wording in your study material.
Other common exemptions: Exempt: promoters' unsecured loan required by a lending bank or institution (while that loan is outstanding); amounts accepted by a Nidhi company only as per the Nidhi Rules; chit subscriptions only as per the Chit Funds Act; collective investment scheme money only as per the applicable SEBI regulations; Learn these as one-line items with the condition attached. Each exemption is subject to the exact wording of the Rule, so check it in your study material.

How to solve Meaning of Deposit and Exempted Deposits questions

Use this method for any question that asks whether a receipt is a deposit.

1Start with the rule: Section 2(31) says any receipt of money by way of deposit or loan or in any other form is a deposit, unless prescribed otherwise.
2Identify the receiver. Confirm it is a company, because the definition applies to receipts by a company.
3Identify the giver: Government, bank, financial institution, another company, foreign source, director, relative of director, member, or an ordinary person.
4Identify the purpose and form: loan, advance for goods, security deposit, share application money, commercial paper.
5Match with the exempted list in Rule 2(1)(c) and check each condition: written declaration, Board's report disclosure, 365-day adjustment, private versus public company.
6If one exemption applies fully, conclude it is not a deposit. If the condition fails or nothing matches, conclude it is a deposit.
7Write the answer in provision-facts-conclusion form: state the rule, apply it to the facts, then give a one-line conclusion for each receipt.

Quickest way: Giver, purpose, condition: 3-second test

When to use it: Use for MCQs and for multi-part case questions with several receipts.

MCQ: look at the giver first. Bank, Government, financial institution, another company or foreign source usually means not a deposit.
MCQ: if the giver is an ordinary person, a firm or a member, expect the answer to be a deposit unless the facts show a special exemption.
MCQ: scan for traps. A relative of a director of a public company, a missing declaration, or an advance unadjusted beyond 365 days make it a deposit.
MCQ: If the MCQ asks for the total amount of deposits, first drop the exempted receipts and add only the non-exempt ones.
Written: use a table-like list in the answer. For each receipt write amount, giver, exempt or not, reason.
Written: begin with one line quoting Section 2(31) and cite Rule 2(1)(c) for the exemptions. These earn the rule marks even if the conclusion slips.
Written: end each item with a clear conclusion such as 'Not a deposit' or 'Deposit'.

Common mistakes in Meaning of Deposit and Exempted Deposits

Treating every loan received by a company as a deposit, or every bank-type receipt as exempt.
Students remember either the wide definition or the exemptions, but not both.
Fix: Always do two steps: apply the wide definition, then test against the exempted list. Decide only after both.
Exempting a loan from a relative of a director in a public company.
The exemption for directors is remembered loosely as 'directors and relatives'.
Fix: Rule 2(1)(c)(viii) covers a person who was a director at the time of receipt, or a relative of the director of the private company. Confirm the exact wording in your study material. This rule is not in the Act text supplied for this page. Both cases need the written declaration.
Ignoring the declaration and Board's report disclosure for director's money.
Students focus on the giver and forget the conditions.
Fix: Write the full condition as the Rule words it: a written declaration, given at the time of giving the money, that the amount is not given out of funds acquired by borrowing or accepting loans or deposits from others, and disclosure of the details in the Board's report.
Treating all customer advances as exempt forever.
The 365-day condition is overlooked.
Fix: Check the date. If the advance is not adjusted against supply within 365 days of receipt, it is a deposit when that period expires.
Exempting a loan from an individual because the lender is a member or friendly party.
Students assume known persons are safe lenders.
Fix: Being a member or friend is not an exemption by itself. Look for a specific entry in Rule 2(1)(c) or the private company provisions in your study material.
Saying share application money is always exempt.
It is remembered as 'share money is not a deposit'.
Fix: It is exempt only while held pending allotment under a valid offer and dealt with as the law requires. Money kept beyond that is not protected.

Worked examples

Example 1

X Ltd, a public company, received the following during the year: (a) ₹50,00,000 loan from a scheduled bank; (b) ₹10,00,000 from a director who gave a written declaration, at the time of giving the money, that it is not given out of funds acquired by borrowing or accepting loans or deposits from others, with the details disclosed in the Board's report; (c) ₹5,00,000 from a relative of a director; (d) ₹8,00,000 from Y Ltd, another company. Which receipts are deposits?

Show the solution

Rule: under Section 2(31), any receipt of money by way of deposit or loan is a deposit unless it is a category prescribed in Rule 2(1)(c).
(a) A loan from a banking company is an exempted category. Not a deposit.
(b) Under Rule 2(1)(c)(viii), money from a person who was a director at the time of receipt is exempt if the director gives the written declaration and the company discloses the details in the Board's report. Both conditions are met. Not a deposit.
(c) On the Rule's wording, the exemption covers a relative of the director of the private company. X Ltd is a public company, so no exemption applies on these facts. This is a deposit.
(d) Amount received from another company is exempted. Not a deposit.
Total deposits: only item (c), ₹5,00,000.

Answer: Only the ₹5,00,000 from the director's relative is a deposit. Items (a), (b) and (d) are exempted.

Example 2

Z Ltd received ₹20,00,000 on 1 March 2026 as an advance from a customer for supply of goods. Case 1: goods worth the full amount were supplied on 20 January 2027. Case 2: no goods were supplied until 10 April 2027. State whether the advance is a deposit.

Show the solution

Rule: an advance received in the course of business for supply of goods is exempt if it is appropriated against the supply within 365 days of receipt. If it is not, it is treated as a deposit on expiry of the 365-day period.
Day count: 365 days from receipt on 1 March 2026 expire on 1 March 2027. There is no leap day between 1 March 2026 and 1 March 2027, so the count is exactly one calendar year.
Case 1: supply on 20 January 2027 falls before 1 March 2027, so it is within the 365 days. The condition is met. Not a deposit.
Case 2: supply on 10 April 2027 falls after 1 March 2027. The advance was not adjusted within the 365 days, so the condition fails. The advance becomes a deposit on expiry of that period, that is, on 1 March 2027.
Check the facts for any special reason that would bring the Rule's proviso on advances into play. None is given here, so the main rule applies.
Conclusion: Z Ltd must then comply with the deposit provisions for this amount.

Answer: Case 1: not a deposit, as it was adjusted within 365 days. Case 2: the advance becomes a deposit on 1 March 2027, when the 365 days from receipt expire, since it was not adjusted in time.

Exam tips

Case questions list many receipts. Make a tidy list: receipt, giver, exempt or not, reason. It earns step marks and keeps you from missing an item.
For MCQs, the trap is almost always a condition: relative in a public company, no declaration, or advance older than 365 days. Check the condition before choosing 'exempt'.
Quote Section 2(31) for the definition and Rule 2(1)(c) for the exemptions. Do not guess section numbers for other provisions.
Learn the exempted list as groups: Government and institutions, foreign sources, other companies, director money, business advances, special cases. This is faster to recall than a long list.
Because the Rules can be amended, check your latest ICAI study material and amendments for January 2027 and later sittings for the exact list and limits.

Practice questions from Acceptance of Deposits by Companies

Meaning of Deposit and Exempted Deposits: frequently asked questions

What is a deposit under the Companies Act 2013?

Section 2(31) says a deposit includes any receipt of money by way of deposit or loan or in any other form by a company. It excludes categories prescribed under the Rules. So any money a company receives is a deposit unless it falls in an exempted category.

Where are exempted deposits listed?

They are listed in Rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014. The list covers bank loans, Government funds, receipts from other companies, foreign sources, certain director money, and business advances. Many entries have conditions that you must check.

Is a loan from a director a deposit?

Under Rule 2(1)(c)(viii) it is exempt if the money is received from a person who was a director at the time of receipt. He must give a written declaration, at the time of giving the money, that it is not given out of funds acquired by borrowing or accepting loans or deposits from others. The company must also disclose the details in the Board's report. This rule is not in the Act text supplied for this page, so confirm the exact wording in your study material. If the conditions are not met, it is a deposit.

Is an advance received from a customer a deposit?

Not if it is received for supply of goods or services in the course of business and is adjusted against the supply within 365 days of receipt. If it is not adjusted within that time, it is treated as a deposit on expiry of the 365 days.