ITR

What Is 269ST of the Income Tax Act?

Section 269 of the Income Tax Act deals with curbing the use of black money in India. Business owners and individuals need to constantly update themselves regarding such taxation laws to maintain compliance and to avoid penalties, fines, and legal action.  

One of the most significant threats that our economy faces is the circulation of black money within the market. Many taxpayers use cash-only transactions to evade paying their tax liabilities and their responsibility toward the economy. A large number of cash transactions lead to a monumental loss of revenue for the government via payment of taxes. Additionally, cash transactions are hard to track, allowing or facilitating the circulation of black money in the economy. Hence, the Indian government introduced Section 269ST to the Income Tax Act to put an end to such illegal cash transactions. The law came into effect in April 2017 and helped curb the widespread usage of black money within the market. Here’s a look at everything you need to know about Section 269ST, and how it helps our economy. 

What Is Section 269ST of the Income Tax Act?

Before the introduction of Section 269ST, Sections 269SS, and 269T served as mechanisms to curb the usage of black money within the Indian market by restricting cash transactions. However, these were not as successful as the government hoped they would be in the long run. Hence, the government introduced Section 269ST which restricts cash transactions to below 2 lakhs in a single day for any individual. Hence, no individual or single person can accept a cash amount above or equal to 2 lakhs in one day.

As a single cash transaction, no person can pay an amount exceeding the sum of 2 lakhs. Individuals cannot split the sum into smaller part payments, and the concerned party cannot accept such payments as well. Additionally, payments received from various sources related to a single event or occasion, in part or as smaller values, cannot exceed 2 lakhs in one day. The amount exceeding this cash limit may be paid through cheques, drafts, or by employing an electronic clearing system through a bank account.

How Does This Impact Loan Repayment?

However, the introduction of this section created confusion regarding the nature of threshold limits for financial transactions. As a result, various non-banking financial corporations sent several representations to receive more clarity regarding whether the limit applies to only one loan installment or for the entire repayment.

The Income Tax Department clarified that when it comes to loan repayments to NBFCs/HFCs, one installment of the repayment is considered as a single transaction. Therefore, if the single installment amount falls below ₹2 lakhs, individuals can pay the same in cash.

Use the Income tax calculator on Vakilsearch to quickly calculate your taxes and submit your ITR.

Exceptions for Section 269ST of the Income Tax Act

The provisions of Section 269ST do not apply to the following individuals or entities.

  1. Government
  2. Banking companies
  3. Co-operative banks
  4. Post office organizations
  5. Transactions that fall under the purview of Section 269SS of the Income Tax Act

Notification 28/2017, specified in the official gazette by the central government mentions that these provisions do not apply on receipts from any post office, savings bank, or cooperative bank. Additionally, notification 57/2017 details other conditions wherein the provisions of Section 269ST will not be applicable. And those are as follows.

  1. Cash received by a business correspondent on behalf of a banking company or cooperative bank, as per RBI guidelines
  2. Additionally, cash transactions by an ATM operator from retail outlet sources on behalf of a banking company or cooperative bank, as per the Payment and Settlement Systems Act, 2007
  3. Cash received from an agent by the issuer of a pre-paid payment instrument as per the Payment and Settlement Systems Act, 2007
  4. Transactions by a company or financial institution that issues credit cards against bills for which payments are due in respect of a single or multiple credit cards
  5. Cash payments are excluded from the total income under clause 17A, Section 10 of the Income Tax calculator

What Happens When Individuals Do Not Comply with These Provisions?

The various penalties implemented in case of infringement of these provisions are as follows:

  1. If an individual receives any sum that violates the provision of the Act, they are liable to pay as a penalty, the amount equal to the number of receipts
  2. In case the individual provides a valid, sufficient and good reason for producing such receipts, they will not have to pay any penalty
  3. All such penalties come under Section 271DA and come under the jurisdiction of the Joint commissioner. However, the sum of the penalty imposed will always be 100% of such receipt in violation of the Act

What Are the Implications of Section 269ST of the Income Tax Act?

Capital gains tax India government introduced these provisions to keep a check on the circulation of black money within the market. The introduction of these rules will also go a long way to promoting digital payments. Which are a more efficient and trackable method of payment. Individuals must keep the following things in mind to prevent violating or infringing this Act.

  1. Verify all transactions made
  2. Match all the payments made with transaction details
  3. Maintain records regarding the date of each payment and transaction
  4. Keep a record of the payment details made against the bills and verify the date of the debt
  5. Maintain a record of the payee details and the bills against which those payments were made

How Individuals Can Violate these Laws

Let us now take a look at an example that highlights how individuals can violate these laws. Imagine you sell something worth 5 lakhs to your friend and accept a cash payment amounting to 2.5 lakhs on the same day against the bill. Doing so is a clear violation of Section 269ST, and the government can impose a penalty on you under section 80rrb of income tax act

Against the same bill of 5 lakh, if you accept a cash payment amounting to 2 lakh, it also results in a violation of the act. Additionally, if for the same amount and bill issued, if you accept the payment in parts from your friend or their relatives, amounting to 2 lakhs or more on the same day, that too violates the Income Tax Act.

However, if the court feels that the involved parties have provided a valid reason for such payments, and they can prove the genuineness of the transactions, fines may not be imposed. Here is a quick look at a few cases of reported violations, wherein the concerned courts dismissed the when to file ITR 2

  1. Bombay High Court in CIT vs. Triumph International Finance
  2. ITAT Pune in case of Muslim Urban co-op credit society ltd vs. Income Tax Department 
  3. Gauhati High court in case of Bhagwati Prasad Bajoriya 183 CTR 484

How We Can Help

As you can see, the introduction of Section 9ST will help drastically reduce the amount of black money circulating within our economy. Individuals need to be aware of such laws and regulations to ensure they stay compliant always. In case you have any queries regarding your tax liabilities or payment of tax dues: https://www.incometax.gov.in/iec/foportal/, feel free to reach out to us at any time. Vakilsearch provides various tax-related services including the filing of Income Tax Returns and completion of Tan registration. Schedule an appointment with one of our legal representatives and stop worrying about the upcoming tax season!

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