Detailed analysis of Section-269ST of Income Tax Act, 1961

269ST
This Section-269ST was inserted by the Finance Act, 2017. Vision of the Government behind insertion of this section was to control source of black money and to promote digital economy. The government has tried to target & penalize receiver rather than payer. This section does not differentiate whether recipient is a seller of goods or capital assets provider of service or any other person. In addition, this section is applicable to all whether individual, company, firm, trust or association of persons, whether assessee he/it is resident or non-resident.
 Section 269ST forbids any person to RECEIVE an amount of Rs.2 lakh and above in cash,
 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.
However, these transactions can be undertaken by account payee cheque (not bearer cheque) or account payee bank
draft or use of electronic clearing system through a bank account.
This section will not be applicable to:-
      1.    Government
      2.    Banking company
      3.    Post office savings banks
      4.    Co-operative banks
      5.    Transactions of the nature covered under section 269SS;
      6.    Other persons/receipts as may be notified-government has notified persons as following:
a)    Cash withdrawals by any person from bank, cooperative bank or post office savings bank
b)    Receipt by business correspondent on behalf of banking company or cooperative bank as per RBI guidelines.
c)    Receipt by ATM operator from retail outlet sources on behalf of banking company or cooperative bank.
d)    Receipt from an agent by an issuer of prepaid payment instruments.
e)    Receipt by company/ institution issuing credit cards against bills raised in respect of one or more credit cards.
f)     Receipt exempt u/s 10(17A) i.e. any award from state/central government
·         Definition:-
1.     Banking company means a company to which the provisions of the Banking Regulation Act, 1949 (10 of 1949) applies and includes any bank or banking institution referred to in section 51 of that Act.
2.     Co-operative bank shall have the same meaning as assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949).
3.     Electronic Clearing System
a)    Credit Card, Debit Card
b)    Net Banking
c)    IMPS, RTGS, NEFT
d)    BHIM, UPI
  • ·    Penalty:-
→  Violation of section 269ST attracts penalty of 100% of such receipt under section 271DA
→  Example: If any person issues invoice for Rs. 7,20,000 and receives Rs. 4,20,000 in cash and  Rs. 3,00,000 by cheque. Then penalty of Rs. 4,20,000 shall be levied.
→  Though, if person proves that there were adequate reasons for the breach, no penalty shall be levied.
  We will discuss further through Examples,
Situation
Solution
Penalty
Example-1:-
Mr. Subodh issued invoice to Mr. Bhushan of                              

1. Rs. 1,75,000 on 10/05/2020 and2.    Rs. 1,25,000 on 11/05/2020.

  •  Receives Payment of Rs.3,00,000 in cash on 16/05/2020

Violation, Mr. Subodh cannot receive the whole amount in cash in single day.
Rs. 3,00,000
Example-2:-
Mr. Subodh issued invoice to Mr. Bhushan of
1. Rs. 1,75,000 on 10/05/2020 and
2.    Rs. 1,25,000 on 11/05/2020.
  → Receives Payment of Rs. 1,80,000 in cash on 16/05/2020 and Rs. 1,20,000 is received from Mrs. Bhushan (Mr. Bhushan’ wife) on 16/05/2020.
No violation, even though invoice is issued to Mr. Bhushan, Mr. Subodh can receive amount from 2 different persons in cash.
Example-3:-
Mr. Subodh issued invoice of Rs. 8,00,000 to his customer on 29/04/2020. The customer intends to make payment in cash in 8 weekly installments of Rs. 1,00,000 each.
Violation, Mr. Subodh cannot receive payment from its customer because cash receipt is in respect of a single transaction.
Rs. 8,00,000
Example-4:-
Mr. Subodh issued 5 invoices of Rs. 80,000 each to his customer on 29/04/2020. The customer intends to make payment in cash of Rs. 10,000 on daily basis.
No Violation, Mr. Subodh can receive Rs. 10,000 on daily basis.
Example-5:-
Mr. Prabhat bought a machinery of Rs. 3,85,000 on 17/02/2020. Seller receives Rs. 1,95,000 from Mr. Prabhat and Rs. 1,90,000 from his son.
Violation, in this case receiver is seller of machine, who is receiving payment of Rs. 3,85,000 in respect of a single transaction, which is more than Rs. 2,00,000.
Rs. 3,85,000
Example-6:-
Mr. Prakash sold a machinery for Rs. 6,50,000 on 14/03/2020
Receipt:- 
      1.    Cash-2,50,000 on 15/03/2020
      2. Cheque-4,00,000 on   15/03/2020
Violation,
     1.    in aggregate from a person in a day
     2. in respect of a single transaction
Rs. 2,50,000
Example-7:-
Mr. Prakash sold a machinery for Rs. 6,50,000 on 14/03/2020
Receipt:-
      1.    Cash-1,80,000 on 15/03/2020
      2.    Cash-1,80,000 on 26/03/2020
      3.Cheque-2,90,000 on 17/03/2020
Violation, because he is receiving more than Rs. 2,00,000 in respect of a single transaction.
Rs. 3,60,000
Example-8:-
Mr. Prakash sold a machinery for Rs. 6,50,000 on 14/03/2020
Receipt:-
      1.      Cash-1,80,000 on 15/03/2020
      2.      Cheque-4,70,000 on 17/03/2020
No violation.
Example-9:-
Mr. Sharad receives amount in his marriage Rs. 1,000 in cash from each 220 guest
No violation, as he is not receiving amount in respect of transactions relating to one event or occasion from a person.
Example-10:-
Mr. Sharad receives amount Rs. 1,51,000 in his marriage and Rs. 1,51,000 in reception in cash from his uncle
Violation, as he is receiving amount in respect of transactions relating to one event or occasion from a person.
Rs. 3,02,000
Example-11:-
Mr. Sharad received gift in cash of Rs. 1,25,000 from his uncle and Rs. 1,00,000 from his brother.
No violation, as he is not receiving amount in respect of transactions relating to one event or occasion from a person.
Example-12:-
Punjab Event Organization arranged a marriage function in January 2020. An invoice of Rs. 1,80,000 was issued on 15/01/2020 for ring ceremony and an invoice of Rs. 1,90,000 on 16/01/2020 for marriage day. Sharad’s father wants to make whole payment in cash on different dates.
Violation, as Punjab Event Organization is receiving amount in respect of transactions relating to one event or occasion from a person.
Rs. 3,70,000
Example-13:-
If in the above example payment for ring ceremony is made by Sharad’s father and for marriage by his mother.
No violation, as he is not receiving amount in respect of transactions relating to one event or occasion from a person.
Example-14:-
Mr. Subodh has a doubtful debtor of Rs. 2,50,000 who is not clearing his dues can Mr. Subodh accept this amount in cash.
As per section-269ST cash can be received only less than Rs. 2,00,000. However as per Section-271DA penalty may not be imposed if person proves that there are adequate reasons for the breach.
  •  ·    Special Provisions:-
→  Section-269ST is applicable to,
      1.    whether the receipt is for business purpose or for personal purpose,
      2.    whether the receipt is with or without consideration,
      3.    whether the receipt is of capital or revenue nature, 
      4.    whether the receipt is exempt or taxable except the receipts.
  • For this section payment received through bearer cheque will be considered as Cash Receipt.
  • CBDT vide Circular 22/2017 dated 3 July, 2017 has clarified that for loan repayment to NBFC/HFC, each installment of repayment shall constitute as a single transaction and all the installments paid for loan shall not be aggregated for the purpose of Sec 269ST. In other words, repayment of loan to NBFC/HFC can be in cash if each installment is less than Rs. 2,00,000. However, other transactions related to NBFC/ HFC will still be covered by this section like cash receipt of down payment at time of sale/ financing of any goods or receipt from sale of repossessed goods etc.
  • It seeks to cover all receipts from a person in relation to transactions relating to one event or occasion such as reimbursement, marriage, birthday, anniversary, functions by religious bodies like satsangs, dharam samelans, exhibitions or the like. This may include payments made in respect of catering, decoration, tents, pandal, sound, rent of resort etc. To illustrate, marriage is an event and there may be several functions relating to it like ring ceremony, haldi ceremony, bangle ceremony, shagun, wedding party, reception etc. All these functions are related to a single event. Therefore, the limit of Rs. 2 Lakh will be for the entire marriage and not for each function.
  • The provisions of Section-269ST are applicable to introduction of capital by partner into partnership firm. It is so because the provisions of Section 269ST are applicable to each and every receipt irrespective of its nature and irrespective of relation between the parties. However, there are two different views,
  1. The introduction of capital by the partner each and every time is a separate transaction or part of the same transaction.

Example:- Mr. Shankar introduced capital as follows

Capital Introduced (In Rs.) Date Violation
1,50,000 14/04/2020 No Violation
2,25,000 16/04/2020 Violation
  1. Partner can introduce capital in aggregate of Rs. 1,99,999 in cash throughout entire year.
  • This section will not apply to introduction of capital by a proprietor in his/her proprietorship.
  • Section-269ST applies to all types of transaction. Therefore, section is also applicable to receipt of payment by farmers.
  • Section-269ST is applicable on cash gifts irrespective of the fact that whether such gifts have been taxed or not. A person cannot accept a cash gift of more than Rs. 1,99,999. However, a person can receive different cash gifts of Rs. 1,99,999 or less from a person, provided the gifts do not form part of a single transaction and not related to single event/ occasion.
  • Borrower covered under section-269SS is not covered by the section 269ST. However, the provisions of the section 269-ST is application to lender covered under section-269T.
Transaction Violation Penalty
Mr. Bhupesh borrowed Rs. 2,10,000 from Mr. Uttam on 10/04/2020 No Violation, this transaction is covered under section-269SS. Hence receipt cannot be covered under section-269ST. No Penalty
Mr. Bhupesh Repaid Rs. 2,05,000 on 17/04/2020 Violation, this transaction is covered under section-269T. Hence receipt is covered under section-269ST. Here Mr. Uttam is recipient hence Mr. Uttam is liable to penalty. Rs. 2,05,000

 

  • Auditor Section:-
  • Clause No.-31(b) of Form No.-3CD requires to give details about amount received or paid in exceeding the limit specified under section-269ST
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