Black money is one of the major challenges that the Indian economy is experiencing. In order to address the problem, the Government of India has been engaging in continuous strategic endeavours in order to eliminate black money. The primary cause of black money is associated with cash transactions between parties in India.
Consequently, the Government has instituted distinct initiatives in imposing a limit on cash transaction. Section 269ST of the Income Tax Act was brought into effect so as to control black money, through restriction on cash transaction. In this article, several essentials which the taxpayer must know about Section 269ST of Income Tax Act will be discussed.
Introduction
The provision of Section 269ST is introduced in Income Tax Act in India that counter illegal finances and also increase transparency. It prohibits anyone or any entity from receiving cash payments of more than Rs. 2 lakhs from a single entity in a single day irrespective of whether the sum is broken up into several transactions or pertains to a particular event or occasion.
This restriction is designed to lower the chances of evasion of income tax, monitor the flow of black money, and provide much needed transparency to the Indian economy. This is a statutory provision that each of the entities and the promoter must adhere to because the noncompliance has stringent penalties. It provides traceable, legitimate financial transactions, aligns the taxpayers with the legal framework and fosters compliance and trust in the financial system.
About Section 269ST of Income Tax Act
Section 269ST is one of the sections of the Income Tax Act, 1961, which states that no person or entity shall on any one day receive by cash an amount of Rs. 2 lakhs or more from a single person or entity.
Section 269ST was not previously included in the Act. It was inserted in 2017 to the Income Tax Act and became operative on 1st April, 2017.
According to the section, cash transaction of Rs. 2 lakh or above is prohibited. It places an onus on the receiver and not the payer as far as this transaction is concerned.
Hence, the receiver cannot receive cash from the payer amounting to Rs. 2 lakh or above unless the payer is exempt under section 269ST of the Income Tax Act.
According to section 269ST of the Income Tax Act, no individuals or entities may receive:
- A total sum of Rs. 2 lakh or more from not only any other person or but also any other entity on the same day.
- An amount of Rs. 2 lakh or more in a single transaction.
- An amount of Rs. 2 lakh or more on a specific occasion or event from a single person or entity.
Exemptions under 269ST of Income Tax Act
Although the receipts falling under section 269ST of the Income Tax Act are found when accepting Rs. 2 lakhs or more in cash from a single person or entity in a single transaction, there are some exemptions.
- Government transactions- Payments given to the government, local governments, or any organization specified by the government are not included in the provisions of section 269ST of the Act.
- Banking channels- The receipt of cash amounting to Rs. 2 lakh or more through banking channels or electronic means is exempted from the provisions of section 269ST. This covers the payment received through an account payee cheque, bank draft, or electronic transfer.
- Specified payments- Section 269ST may exempt particular kinds of payments or kinds of payees as the Indian government may notify or as listed in any other provisions of the Income Tax Act.
Applicability of section 269ST on Repayment of Loan
An individual may repay his loan amount to any Housing Finance Company or Non-Banking Finance Company in cash terms, provided that each loan instalment is less than Rs 2 Lakhs.
After introducing this section, several representations were received from NBFCs and HFCs that the limit of Rs. 2 lakhs shall apply for one instalment of loan repayment or for the entire amount of such repayment.
It made it clear that this applies when the loan is being serviced towards NBFCs/HFCs. That instalment of loan repayment itself will be a single transaction, and therefore, any loan instalment amount is paid to be less than rupee 2 lakh to make cash payments. The limitation, as prescribed under the section, does not apply to the aggrandized instalments as per any loan.
Penalties under the provision Section 269ST
Here is the detailed amount of the penalty as mentioned under section 269ST of the Income Tax Act:
- Penalty threshold limit- Section 269ST of the Income Tax Act provides that the penalty would be the sum of cash received in excess of the limit specified. So, if an amount of Rs. 2 lakh or above is received from any one person on one day in cash, then the penalty to be levied would be the same as the amount received in cash that is in contravention of the section.
- Applicability of penalty- Under section 269ST of the Income Tax Act, the penalty applied on every transaction in a day of Rs. 2 lakh or more on its own. For example, if you receive Rs. 3 lakh in cash from one person on one particular day, the penalty will be Rs. 3 lakh.
- Extent of the penalty- Section 269ST of the Income Tax Act applies to every person, incorporating businesses, professionals, and all other types of organizations, regardless of the nature or size. Farmers, too, are covered if they accept cash of more than Rs. 2 lakh for their produce in a single day.
Impact of Section 269ST
The introduction of Section 269ST has absolutely revolutionized the business world by thrusting tremendous changes from cash transactions to digital payments. This initiative has really curbed black money, promoted tax compliance, and simultaneously presented challenges for small businesses, mostly in rural areas, reliant on cash transactions.
The Government has taken steps like BHIM and UPI so that the cost is much reduced and business houses prefer digital payments.
However, this has also resulted in an increase in informal cash transactions, which the tax system does not cover. This has led to revenue loss for the government and impaired the cash flow monitoring system.
The government should act towards improving tax compliance through simplified procedures, less burden and transparent regulations. In this way, the benefits of Section 269ST will outweigh the challenges of creating a conducive environment for businesses and taxpayers.
Conclusion
These provisions contained in section 269ST may have wide impact on large number of persons and therefore the cash recipient must take all possible measures so as to refrain from breach of section 269ST otherwise he may invite penal action. The tax payers ought to fill the gaps and instead comply with the requirements as intended by the government to create a cash less economy.
Limit on Cash Transactions is a useful strategy to provide a double benefit for the Country, India. This has opened up an avenue to prevent the generation of Black Money apart from aiding the advancement of India into a digital age. As envisaged in section 269ST, black money by the violators is now limited to a great extent.
In addition, very few rationales can be put forth to defend the breach of the same. The difficulty of demonstrating the existence of good and sufficient cause is more than that of reasonable cause. The Limit on Cash Transactions may be an antidote to the violence of Black money that has taken root in the country for decades.
References
The Income-Tax Act, 1961 (Act No. 43 of 1961)
