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Section 269ST of Income Tax Act


Section 269ST of Income Tax Act

One of the biggest issues faced by the Indian Economy is Black Money. In order to solve the issue, the Government of India has been continuously initiating various strategic attempts in order to curb black money. The root cause of black money is attributable to cash transactions between parties in India. Therefore, the Government has taken specific initiatives to impose a limit of cash transactions. Section 269ST of Income Tax Act was introduced to curb black money by restricting cash transactions. The present article discusses the various essentials which a taxpayer should know about Section 269ST of the Income Tax Act.

Prior to Section 269ST

  • Before the introduction of Section 269ST, provisions from Section 269SS and Section 269T of the Income Tax Act were applicable. These sections were designed to discourage the acceptance and repayment of any loans, deposits or specified sums through liquid cash for more than INR 19,999.
  • The mandation that cash transactions should not exceed Rs.19,999 was initiated to check and to curb the use of black money. However, the results did not yield what was expected. The Courts would levy severe punishment for those who contravened the provisions of these sections. However, a person was not held liable if the Courts have cause to believe that an individual acted with bona fide intentions and not for generating black money.
  • No penalty will be leviable under Section 269SS and Section 269T if the transaction performed by the taxpayer has the following properties:
      • If the transaction in question appears to prima facie be genuine.
      • When the transaction is officially recorded in books of the involved parties of the deal.
      • If the identity and confirmation of the parties involved in the transaction are on record.
      • If the transaction does not involve any black money, tax evasion or wrong intentions.

Introduction of Section 269ST

The Finance Act of 2017 introduced Section 269ST in the Income Tax Act with effect from April of 2017. This section was implemented in order to make provisions to restrict cash transactions as the effectiveness to control black money could not be achieved by the previous sections. Section 269 of the Income Tax Act states that no person/ individual must receive an amount of INR 2 lakhs or more under the following conditions:

  • In total from another person/ individual in a day. However, a person may receive an amount below INR 2 Lakhs in cash in a day from an individual.
  • If an individual splits the amount into various invoices of smaller values, then the individual on the receiving end cannot accept the same.
  • If an individual receives cash from multiple small and different transactions but is related to a single occasion or event, the person on the receiving end can not accept cash. However, they may do so through an account payee cheque, an account payee bank draft or the use of an electronic clearing system through a bank account.

Exceptions under Section 269ST

The following are the exceptions under Section 269ST of the Income Tax Act:

  • The provisions of Section 269ST of the Income Tax Act would not applicable to the following.
    • The Government
    • Any banking company
    • Any post office savings bank
    • Any co-operative bank
  • Transactions with a nature mentioned under Section 269SS of the Income Tax Act are considered exceptions under this Section.
  • Any other individual/ person or a class of persons or receipts that the Central Government may specify through the notification in the Official Gazette.

Penalties under Section 269ST

  • An individual or person who contravenes the provisions of Section 269ST by receiving an amount of INR 2 Lakhs, the concerned individual would be liable to pay an amount as penalty. However, if the person has the capability to prove that there were significant reasons for the contravention, the Court may free the individual from the liability of any penalty.
  • Taxpayers should note that the Act does not mention or clarify what good and sufficient reasons to contravene would constitute. The legislative intent behind the introduction of Section 269ST is to direct India towards a digital economy while, at the same time, curbing black money in a more effective manner.
  • A new Section 271DA was introduced under the Income Tax Laws and Rules. According to this Section, if an individual receives an amount in contravention to any of the provisions or rules of Section 269ST, they would be held accountable to pay a penalty of the total sum equal to the amount that was received in cash. Thus, in layman terms, the penalty amount would be 100% of the amount that was acquired in contravention of this section.

Practical Implications

The Government of India has introduced this Section in order to keep a check on illegal money and to add the concept of tax transparency in relation to the transactions that are initiated in the country. Therefore, the following are to be followed by an individual while starting a deal and certify that they are compliant under the provisions of this section:

  • Every transaction must be verified. It does not matter if the transactions are joint or single; they have to be verified.
  • Every payment must match with their respective transactions.
  • The verification of cash payments is essential against the following.
    • Every bill, transaction or event (Payment received against which transactions and bills).
    • Cash payments made on every date.
    • Payee details, i.e., who is paying and against which bill on which date.
  • If the transactions are related or not related then:
    • the limit of single transactions along with
    • per day
    • per entity limit

Therefore, while initiating a cash payment, the following levels of check have to be executed:

  • Daily limit check
  • Transaction or every bill check
  • Entity or paying party check

Update on Section 269ST

An individual may repay their loan amount to any Housing Finance Company or Non-Banking Finance Company in terms of cash under the condition that each loan instalment is less than INR 2 Lakhs. Subsequently, after the introduction of this Section, various representations were sent by NBFCs and HFCs as to whether the limit of INR 2 Lakhs applies to one instalment of the loan repayment or for the whole amount of such repayment.

Under this context, the ITD clarified that if an individual is repaying the loan to HCFs or NBFCs, then the one instalment of the loan repayment shall constitute a single transaction. Therefore, if a single loan instalment amount is less than INR 2 Lakhs, it could be paid in cash. All the instalments paid for a loan would not be aggregated for the purpose of determining the applicability of INR 2 Lakhs limit.