Section 269ST of Income Tax Act 1961

Overview

In India, the quantum of domestic black money is huge which adversely affects the revenue of the Government creating a resource crunch for its various welfare programmes.

Black money is generally transacted in cash and large amount of unaccounted wealth is stored and used in form of cash.

In order to achieve the mission of the Government to move towards a less cash economy to reduce generation and circulation of black money, Finance Act,2017 inserted section 269ST of Income Tax Act 1961.

What is Section 269ST of Income Tax Act 1961

Section 269ST provides that no person receive an amount of is Rs. 2,00,000 or more except by account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account or through such other prescribed electronic mode ( w.e.f. 1.9.2019):

  • in aggregate from a person in a day; or
  • in respect of a single transaction; or
  • in respect of transactions relating to one event or occasion from a person.

Note:

The CBDT has, vide Circular No. 22/2017 dated 3.7.2017, clarified that in respect of receipt in the nature of repayment of loan by Non-banking Finance Companies(NBFCs) or Housing Finance Companies (HFCs), the receipt of one instalment of loan repayment in respect of a loan shall constitute a ‘single transaction’ as specified in clause (b) of section 269ST and all the instalments paid for a loan shall not be aggregated for the purposes of determining applicability of the provisions section 269ST.

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Non-applicability of Section 269ST

  1. any receipt by Government, any banking company, post office savings bank or co-operative bank.
  2. transactions of the nature referred to in section 269SS.
  3. such other persons or class of persons or receipts, notified by the Central Government.

Accordingly, vide Notification No. 28/2017, dated 5-4-2017 and Notification No. 57/2017, dated 3-7- 2017, the Central Government has specified that the provision of section 269ST shall not apply to the following, namely:

(a)receipt (cash withdrawals) by any person from a bank, co-operative bank or a post office savings bank;

(b)receipt by a business correspondent on behalf of a banking company or co-operative bank, in accordance with the guidelines issued by the Reserve Bank of India;

(c)receipt by a white label automated teller machine operator from retail outlet sources on behalf of a banking company or co-operative bank, in accordance with the authorisation issued by the Reserve Bank of India under the Payment and Settlement Systems Act, 2007;

(d)receipt from an agent by an issuer of pre-paid payment instruments, in accordance with the authorisation issued by the Reserve Bank of India under the Payment and Settlement Systems Act, 2007;

(e)receipt by a company or institution issuing credit cards against bills raised in respect of one or more credit cards;

(f)receipt which is not includible in the total income under section 10(17A).

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Penalty for failure to comply with provisions of Section 269ST

If a person receives any sum in contravention of the provisions of section 269ST of Income Tax Act 1961, he shall be liable to pay, by way of penalty under section 271DA, a sum of equal to the amount of such receipt. However, no penalty shall be imposed if such person proves that there were good and sufficient reasons for the contravention.

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Notes

Circular No. 27/2017, dated 3-11-2017:-Applicability of income-tax provisions under section 269ST to cash sale of agricultural produce by cultivators/agriculturists to traders

Section 269ST of Income Tax Act 1961, subject to certain exceptions, prohibits receipt of Rs. 2 lakh or more, otherwise than by an account payee cheque/draft or by use of electronic clearing system through a bank account from a person in a day or in respect of a single transaction or in respect of transactions relating to an event or occasion from a person.

Therefore, any cash sale of an amount of Rs. 2 lakh or more by a cultivator of agricultural produce is prohibited under section 269ST.

It is clarified by the CBDT that cash sale of the agricultural produce by its cultivator to the trader for an amount less than Rs. 2 lakh will not attract prohibition under section 269ST in the case of the cultivator.

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Examples

Example No.1

Mr.X buys car worth Rs.2 Lakhs and pays an amount by cash to Mr.Y on a single day in 4 equal installments of Rs.50,000 each.As Mr.Y accepted cash worth Rs.2 Lakhs from a single person in a single day, section 269ST is applicable and Mr.Y has to pay penalty of Rs.2 Lakhs.

Example No.2

Mr.Raju goes through a medical surgery and the hospital charges him a bill of Rs.4 Lakhs.Raju clears the bill in 4 installments of Rs.1 Lakh each on 4 different dates.Here, the cash received by hospital are less than Rs.2 Lakhs and have been received on different dates.Whether this transaction violates section 269ST?

Answer is Yes.Hospital has to pay the penalty because they received the payments in respect of single transaction.So,splitting of payments over several days is prohibited.

Frequently Asked Questions(FAQ’s)

1.What is Section 269st of Income Tax Act 1961?

Ans.Section 269ST bans such transactions in cash amounting to Rs 2 lakh or more on a single day, in respect of a single transaction or transactions relating to one event or occasion from an individual.

2.Is there a limit on cash transactions?

Ans.Yes.A person in a day, is allowed to carry out cash or related transactions that is below Rs 2 lakhs.

3.Can I withdraw more than 2 lakh from bank?

Ans.If an individual receives more than Rs 2 lakhs in cash, then he will have to pay a penalty as mentioned under section 271DA of the Income Tax Act.

4.How much is the penalty u/s 271DA?

Ans.A sum of equal to the amount of such receipt.

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