Income Tax

All about Section 269ST of Income Tax Act, 1961

Black money is the biggest issue faced by the Indian economy. To curb the problems raised by black money, the government has inserted Section 269ST in the Income Tax Act, 1961.

In the article, we will look into the purpose of incorporating Section 269ST in the Act.

What is section 269ST of the income tax act?

Section 269ST of the Income Tax Act, 1961 states that no person must receive cash that exceeds Rs. 2 lakh or more in:

• aggregate from one person in a single day;
• with respect to the single transaction; and
• respect of transactions related to an event or occasion from a person;

Other than by cheques, bank draft, or electronic way of transfer of funds from one bank account to another.

The government has introduced this provision to curtail the situation of increase in black money. The government believed that if the cash transactions are limited to a certain amount, it will help to control reduce the black money in the market because all the black money is being collected and shifted in cash transactions only.

The government felt a need to keep a check on illegal money and implement tax transparency for the transactions entered into the country.

Thus, the following conditions are to be satisfied by an individual before initiating a transaction is:

• All the transactions, i.e. joint or single, must be verified.
• Cash payments verification is essential against the following:
  • Every transaction or bill;
  • Cash payments made on every date;
  • The details of the payee.
• In case the transactions are related or not related, then:
  • Single transaction limit along with
  • Per day & per entity limit.
• The following must be checked before initiating a cash transaction:
  • Daily limit check
  • The entity paying the cash
  • Every transaction

After the insertion of this provision, the ITD clarified that in case of repayment of loan to HFC or NBFC’s one instalment is considered as single transaction. Therefore, if the instalment is less than Rs. 2 lakhs it can be paid in cash. All the instalments cannot be construed as a part of single transaction and to determine the limit of Rs. 2 lakhs.

Why was it introduced?

Before the insertion of Section 269ST in the Income Tax Act, sections 269SS and 269T were applicable. These sections discouraged the acceptance or repayment of loans, deposits via cash that exceeds Rs. 19,999/-. The provisions helped in curbing the use of black money. However, the outcome didn’t come as expected. Also, the penalty was there for those who violated these provisions.

A person is not held liable if he can satisfy the court that his intentions were bonafide.

No penalty will be levied in the following case:

• If the transaction is genuine prima facie;
• The transaction is recorded in the account books of the parties involved;
• The transaction is in bona fide intentions, and there is no tax evasion; and
• When the identity & confirmation of the parties are on record.

What are the exceptions of Section 269ST?

The provision does not apply to the following categories of organizations.

The exceptions under the section are as follows:

• Government;
• Post office;
• Banking company;
•  Co-operative bank;
• All the transactions made under Section 269SS; and
• Any other person or class of persons notified by the central government in the official Gazette.

The notification released on 3^rd July, 2017 by the Ministry of Finance specified additional exceptions apart from the one mentioned above.

The additional exceptions are:

• Receipt by a business correspondent as per the guidelines issued by the RBI and on behalf of a banking company or co – operative bank;
• Receipt by a white Label ATM from retail outlet sources, as per the authorization issued by the RBI under the Payment and Settlement Systems Act, 2007 and on behalf of a banking company or co – operative bank;
• The receipt that is not included in the total income under Section 17 Clause 17A of the Income Tax Act, 1961^[1];
• Receipt from an agent by an issuer of pre – paid payment instruments, as per the authorization issued by the RBI under the Payment and Settlement Systems Act, 2007 (51 of 2007); and
• Receipt by an institution or a company issuing credit cards against the bills regarding one or more credit cards.

What is the penalty under Section 269ST?

A penalty is to be imposed in case of non-compliance with Section 269ST under Section 271DA introduced in the year 2017. The penalty imposed is equal to the amount received by the receiver of cash. However, there is an exception to Section 271DA that if the receiver can prove that there were goods, he will not be liable.

The joint commissioner must impose the penalty to the cash receiver if the cash limit exceeds Rs. 2 lakhs.

Examples for the transactions covered under Section 269ST:

• A partnership firm has entered into a transaction to purchase immovable property for Rs. 25 lakhs. The payment mode for the purchase is partly cash and partly by NEFT. The cash received by the receiving party is Rs. 5 lakhs, and the rest amount was transferred through NEFT. In this example, the cash transaction is more than the prescribed limit, i.e., 2 lakhs, so the receiver will be liable to pay the penalty under Section 271DA. The penalty for the receiving party is the same amount of the cash received,

• In another example, the same firm has withdrawn Rs. 3 lakhs from a bank account. The firm cannot be held liable under Section 271DA, as there is no restriction on the withdrawal of cash from the bank under Section 269ST.

Conclusion

It is evident from the information above that the insertion of Section 269ST in the Income Tax Act helps in curtailing the black money present in the country. Thus, compliance with this section is very important and must be compulsorily complied with.

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