Restriction on Receipt of Cash – Section 269ST

Restriction on Receipt of Cash – Section 269ST

[Part A] Introduction to Section 269ST of India’s Income Tax Act, 1961

A new Section 269ST has been introduced, the Finance Act, 2017 in the Income Tax Act, with effect from 01st April 2017. To achieve the mission of moving towards a less-cash economy, the Government intends to restrain the cash transaction and reduce the circulation and generation of black money in the economy under this section.

In this section, it has been stated that “No individual shall hold an amount of two lakh rupees or more

  • in aggregate from a single individual in a day; or
  • in respect of a single transaction; or
  • in respect of transactions associating to one event or circumstance from a person, otherwise than using an electronic clearance system or an account payee bank draft or through a bank account or an account payee cheque.

It has been implemented that the requirements of this section shall not apply to

  • any receipt by Government;

Any banking company, co-operative bank or post office savings bank;

  • transactions of nature associated to in section 269SS;
  • such other individuals or class of individuals or receipts, which the Central Government may, by specific notification in the Official Gazette.

Another new section- 271DA has been introduced into the Finance Act, 2017, which presents the penalty for failure to comply with the provisions mentioned in section 269ST.

[Part B]: Analysis of Levying Restriction on Cash Receipts Under Section 269ST

The comprehensive analysis of Section 269ST of Income Tax Act, 1961 is as beneath:

Restriction Imposed only on Receipt Of Money And Not On Anything In-Kind

It is not explicitly mentioned whether the rules do not apply only to the receipt of anything in kind but on the receipt of money under Section 269ST. According to the author, the background and purpose of introducing these provisions are mentioned in the Memorandum Explaining Clauses of the Finance Bill. It can be logically concluded that these provisions are suitable only regarding the receipt of money and not in case of the receipt of anything in kind.

In the memorandum, “Restriction on cash transactions”, under the given heading. The appropriate description provided is that “Black money is generally transacted large amount and in cash which are actually unaccounted wealth that has been stored to use in form of cash. In order to accomplish the mission to move towards a less cash economy to reduce generation and circulation of black money, the Government is proposed to insert section 269ST”.

Thus, the principal aim is to restrict transactions that are made in cash. The cash transactions can occur only in the case of money and not for receipt in kind. Therefore, logically it can be concluded from those requirements that section 269ST is regarding money only.

It is also mentionable here in Section 269SS a related type of restrictive provisions is also contained. It has been particularly specified there that they are relevant only in respect of “Sum of money” and not otherwise. This reason also gets supported by the overhead view.

If the provisions mentioned in Section 269ST are stretched to items in kind, and by providing another reason here like properties which are movable or immovable; then there will be numerous other issues (like for penalty U/s. 271DA, which is the same as the actual value of such item, e.g., actual fair market value or stamp duty value or transaction value etc.) which remains unaddressed. Therefore, logically may be imposed these provisions in respect of receipt of money only.

Some peoples have another prospect that the earlier provisions are also applicable to the receipt of anything in kind. Section 269ST states that the base of this alternate view of the word “Amount” is to be used and not the word “Sum”. The word amount covers both cash and kind as it is viding, whereas the word sum covers only the sum of money.

The author disagrees with this different view due to the reasons that –

  • firstly, no distinction is made between these two words by the legislature. Section 269ST mentions the word “Amount” is noticed to be adopted, whereas, in the associated Section 271DA, the term “Sum” has been adopted. Therefore, these criteria do not oblige here to be meaningful.
  • Secondly, the wordings mention in section 56 of the alternate view appeared to be generated, where the sum of money is represented by the word “Sum”. In this theory, specifically here in this section, it is mentioned that the word “sum” has been practised merely only for “money” because, for properties that are movable and immovable, there are different clauses mentioned in section 56 itself. Therefore, the second base does not appear to be tenable of the alternate view.

However, to avoid inconvenience to the peoples, CBDT should clarify this concern.

Reason Why Restriction is imposed on the Person Receiving Money and Not the one Paying Money

The restriction U/s. 269ST is only imposed on the receipt of money and not on payment of money. Therefore, in violation of these provisions, a penalty would be charged U/s. 271DA and shall be leviable only on the individual receiving money and not on the person who is paying the money. (It is mentionable here that over certain prescribed limits, there are already some restrictions on the payment of money in cash etc. However, they are carried in the other provisions of the Income Tax Act, e.g., Section 40A(3) etc., and they are not subjected to the matter of the current topic).

Restriction Imposed When Amount Received is Rupees 2 Lakhs Or More:

When the receipts are not more than rupees 2 lakhs, such provisions of this section are not applicable. They are only appropriate when the amount of receipt is Rs. 2 lakhs or more. This limit is specified in many ways like per transaction, occasion/event, per day etc.

Allowable Modes Of Receipts

The amount beyond the limit mentioned above can be redeemed only within:

  • an account recipient bank cheque; or
  • an account recipient bank draft; or
  • use of an electronic clearance system through a bank account (e.g., RTGS, Online transfer from one bank account to another, NEFT, etc.)

Any other mode, e.g., cash, crossed cheque, self-cheque, transfer entry or adjustment entry in books of account, bearer cheque etc., are not authorised for the collection of the receipt of amount. However, through several modes, e.g., cash etc., the amount can be received under the above limit.

Exemption Granted In Section 269ST of the Income Tax Act

The Government (State Government, Central Government etc. and not the local authority), Banking companies, Cooperative Banks and Post Office Saving Banks have been exempted from these provisions. Thus, in all types of accounts (e.g., current account, loan accounts, saving account, etc.), the money of whatever amount can be deposited in cash by the account holder, borrower, etc. Similarly, any amount of duty, tax, etc., can be paid to the State Government, Central Government and other than the local authority through cash or by other modes.

Transactions Applicable to Section 269ST of the Income Tax Act

Under section 269ST and its stated provision does not accommodate the list of purpose/transactions on which they shall be applicable. Therefore, all the purposes/transactions (other than those specified in section 269SS and exempted in section 269ST) are incorporated by the above restriction.

Some cases of these purposes/transactions may be:

  1. sale returns of goods and services
  2. sale returns of movable properties
  3. salary, dalali, brokerage, contract receipts, fees, remuneration, etc. (d) recovery of given loan and interest thereon (this is not incorporated presently in Section 269SS of the Income Tax Act)
  4. gift received on marriage or in an occasion or otherwise
  5. donation acceptance by trusts etc.
  6. advance that has been taken by a partner of the firm, agents from the principal, employees from employer, etc., for business or personal purpose
  7. withdrawal of profit/capital by a partner of the firm from the firm.

This is only a standard list. There may be several other types of purposes/transactions where the restriction that is mentioned above is applicable.

Application of Restriction On All The Entities

All the entities (except the ones which are specifically exempted) is applicable to restriction U/s. 269ST. In the same section, the word “Person” has been utilised for both the receiver and payer. As per section 2(31), the term ‘person’ includes individuals, firms, AOPs, BOIs, local authorities, other artificial judicial persons, HUFs, and companies. Thus, the restriction is imposed on the receipt of money by any person, firm etc., an entity from any other person, firm etc., entity.

Applicable to Receipts For The Purpose Of Business, Personal Or Any Other

Irrespective of the purpose, the restriction can be applicable on accepting the amount, i.e., whether the purpose of the business is personal or as a custodian, trustee, etc. However, these provisions do mention that these are not applicable to the deposit or transfer of immovable property or the transactions of receiving money for the loan.

Because Section 269SS already holds separate provisions under it that restrict receipt of money in cash etc., or for the above purposes. The requirements of Section 269ST also notably exclude receipts on account of the transactions covered in Section 269SS.

The limit for receiving money for those purposes in cash etc., is Rs. 20,000/- only. Here tax consultants should take off that etc., while there is a need to educate the general public (people who are not much skilled in tax laws) that the limit of Rs. 20,000/- is not increased to Rs. 2 lakhs for a loan, deposit, transactions made for immovable property etc., due to Section 269ST.

Applicable To Receipts With Or Without Consideration:

Irrespective of the fact, whether the receipt is with or without consideration, the restriction is applicable. In contravention of Section 269ST where it states that in case receipt of money without consideration, there will be a dual impact, one charge of tax U/s. 56 (in definite cases) as well as a tax of penalty U/s. 271DA.

Restriction On Withdrawal From Bank In Cash Removed:

Initiallythe most severe and significant influence of this restriction was that it was applicable on the removal of the amount in cash etc., from someone’s own current account, from bank loan accounts like CC Limit, OD limits, saving bank account etc.

However, later on, this restriction was withdrawn by the CBDT vide Notification no. 28/2017, S.O. 1057 (E), F.No.370142/ 10/2017-TP dated 05th April 2017. In this respect, a press release dated 05th April 2017 was also released by the CBDT.

The restriction also applies to Receipt for Sale of Agricultural Produce:

The provisions of section 269ST should not be applicable to the sale of agricultural produce by any per being an individual or Hindu Undivided Family in whose hands such receipts constitutes agricultural income which has been mentioned in clause 83 of the Finance Bill. But this rejection was not performing in the proposed Section 269ST in the Finance Bill, 2017.

Therefore, at that time, due to some mistake, it was generally felt that the same provision might have been omitted in proposed Section 269ST and was assumed to be incorporated later in the final Section 269ST. This proposed exemption was also emerging to be logical because already such type of agricultural income-based exemption has been provided in similar existing provisions of Section 269SS. But later on, in the final passed Finance Act, none of these reliefs was considered.

“Any cash purchase of an amount of Rs. 2 lakh or more by a cultivator of agricultural harvest is restrained under section 269ST of the Act” was further clarified explicitly by the CBDT vide Circular No. 27/ 2017 F. No. 370149/213/2017 –TPL.

Therefore, on receipt of the sale proceeds of the agricultural produce is also subjected and applicable to the above restrictions.

Conclusion: Thus, the Government, within the ambit of these provisions, has nearly tried to cover all the significant transactions. However, some clarifications and relaxations for genuine circumstances (as discussed earlier ) must be granted.

[Part C]: Extract of Section – 269ST of India’s Income-tax Act, 1961

[Mode of undertaking transactions under 269ST.]

No individual shall receive an amount of two lakh rupees or more:

  • in aggregate from a single individual in a day; or
  • in respect of a single transaction; or
  • in respect of transactions associating to one event or circumstance from a person, otherwise than using an electronic clearance system or an account payee bank draft or through a bank account or an account payee cheque.

Provided that the provisions mentioned in this section shall not apply to:

  • any receipt by Government;

any banking company, co-operative bank or post office savings bank;

  • transactions of nature associated to in section 269SS;
  • such other individuals or class of individuals or receipts, which the Central Government may specify, by specific notification in the Official Gazette.

Explanation: the objectives of this section,

  • “banking company” shall hold the identical meaning as attributed to it in clause (i) of the Explanation to section 269SS;
  • “co-operative bank” shall hold the identical meaning as attributed to it in clause (ii) of the Explanation to section 269SS.]

[Part D]: Extract of Section 271DA of India’s Income-tax Act, 1961

[Penalty charged for failing to comply with provisions of section 269ST.]

Section 271DA states that:

Suppose an individual endures any sum in infringement of the provisions of section 269ST. In that case, that individual shall be liable to pay the penalty, a sum equivalent to the amount of such receipt:

If such person provides and proves that there were good and sufficient reasons for the infringement, then no penalty shall be imposable on that individual.

The Joint Commissioner holds power to impose any penalty under the mentioned sub-section.

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