Brief Study of Section 269ST of Income Tax Act, 1961

In this article, we will understand why section 269ST is introduced and what is the need of invoking such provisions. Section 269ST was introduced by finance act, 2017 in the Income-tax act, 1961 by the central government in order to curb the tax evasion, regulation, and circulation of Black money.

Most of the transactions in India are done in cash (especially real estate transactions )as a tactic to evade the income tax, as cash transactions are difficult to track by the department.

Therefore there is a great need and requirement to invoke such provisions with the intention of restricting cash transactions.

There are already provisions in the act to restrict cash transaction. For instance, the provisions of section 40A(3) imposing restrictions on cash expenditure. Similarly, there are provisions under sections like 269SS/269T regarding accepting and repayment of loans in cash.

But, there is no provision in income tax regarding cash receipts before inserting section 269ST ( i.e. before 1st April 2017 ) and this what it makes a difference between the existing provisions and 269ST.

It cast a restriction on the person receiving the cash i.e. payee.

Understanding the provision of section 269ST;

No person shall receive an amount of two lakh rupees or more

(a) in aggregate from a person in a day; or
(b) in respect of a single transaction; or
(c) in respect of transactions relating to one event or occasion from a person,
otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account.

Provided that the provisions of this section shall not apply to—
(i)  any receipt by—
(a)  Government;
(b)  any banking company, post office savings bank or co-operative bank;

(ii)  transactions of nature referred to in section 269SS;

(iii)  such other persons or class of persons or receipts, which the Central Government may, by notification in the Official Gazette, specify.

Explanation.—For the purposes of this section,—
(a)  “banking company” shall have the same meaning as assigned to it in clause (i) of the Explanation to section 269SS;
(b)  “co-operative bank” shall have the same meaning as assigned to it in clause (ii) of the Explanation to section 269SS

Important Notes:

1). Applicability:

This section is applicable to all persons as defined in section 2(31). It covers all types of receipts whether it is a capital or revenue.

Penalty for non-compliance of section 269ST (Section 271DA) If a person receives any sum in contravention of the provisions of section 269ST, he shall be liable to pay, by way of penalty, a sum equal to the amount of such receipt.

Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner. Examples of transaction covered under section 269ST.

Example-I:  Laxminarayan & Associates ( a partnership firm ) has entered into a transaction of purchase of immovable property from Pushp Kumar Sahu at a consideration of 25,00,000/- INR.

The mode of payment is partly cash and partly by NEFT, cash portion is 5,00,000 and remaining is NEFT. In this case, Pushp Kumar Sahu has received cash in excess of 2,00,000/-INR.

In which he has violated the provisions of section 269ST. Therefore penalty will be leviable u/s 271DA for receiving cash @ rate of 100%. In layman, penalty will be levied on transaction portion received in cash.

Example-II: Laxminarayan & Associates ( a partnership firm) has withdrawn an amount of 3,00,000/-INR from a bank account in a single day.

In this case, receiving person is Laxminarayan & associates which has received an amount exceeding 2,00,000/-but still it is not violating the provisions of section 269ST.

Therefore, the penalty will not be levied u/s 271DA; because there is a clarification regarding the same by Central Board of Direct taxes that there will be no restriction on cash withdrawal from the bank.

Clarifications in respect of section 269ST of the Income-tax Act, 1961 Vide Circular No. 22 of 2017 Dated 03rd July 2017.

F.No.370142/10/2017-TPL
Government of India
Ministry of Finance
Department of Revenue
(Central Board of Direct Taxes) (TPL Division) ***

With a view to promote the digital economy and create a disincentive against cash economy, a new section 269ST has been inserted in the Income-tax Act, 1961(the Act) vide Finance Act, 2017.

The said section inter-alia prohibits receipt of an amount of two lakh rupees or more by a person, in the circumstances specified therein, through modes other than by way of an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account.

Penal provisions have also been introduced by way of a new section 271DA, which provides that if a person receives any amount in contravention to the provisions of section 269ST, it shall be liable to pay the penalty of a sum equal to the amount of such receipt.

2. Subsequently, representations have been received from non-banking financial companies (NBFCs) and housing finance companies (HFCs) as to whether the provisions of section 269ST of the Act shall apply to one installment of loan repayment or the whole amount of such repayment.

3. In this context, it is clarified that in respect of receipt in the nature of repayment of loan by NBFCs or HFCs, the receipt of one installment of loan repayment in respect of a loan shall constitute a ‘single transaction’ as specified in clause (b) of section 269ST of the Act and all the installments paid for a loan shall not be aggregated for the purposes of determining applicability of the provisions section 269ST.

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Article Written By – Pushp Kumar Sahu

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