No Person can receive cash of Rs 3 Lakh or more w.e.f 01.04.2017 – Section 269ST

By | February 2, 2017
(Last Updated On: May 29, 2017)

Restriction on cash transactions in India -Section 269ST of Income Tax Act

[ Section 269ST of Income Tax Act  proposed by Finance Bill 2017 w.e.f 01.04.2017]

Restriction on cash transactions in India -Section 269ST of Income Tax Act Restriction on cash transactions in India -Section 269ST of Income Tax Act

Commentary on Section 269ST – Cash Receipt of Rs 3 Lakh or More  w.e.f 01.04.2017

  • Read  Analysis of Section 269ST – Cash Receipt Rs 2 Lakh or more Banned w.e.f 01.04.2017 after Finance Act 2017
  • Effective date: Provision is effective from 01/04/2017 (F.Y.2017-18 onwards)
  • Finance Act 2017 has reduced the Limit u/s 269ST from Rs 3 Lakh to Rs 2 Lakh w.e.f 01.04.2017 – Read 269ST- Cash Receipt Rs 2 Lakh or more Banned w.e.f 01.04.2017
  • No Cash Receipt of Rs 3 Lakh or more w.e.f 01.04.2017 :- Finance Bill 2017 proposed to insert section 269ST in the Income Tax Act to provide that no person shall receive an amount of three lakh rupees or more,

    (a) in aggregate from a person in a day;

    (b) in respect of a single transaction; or

    (c) in respect of transactions relating to one event or occasion from a person,

    otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account.

  • Section 269 ST applies to all persons :- As per section 2(31), the word person includes individuals, HUFs, companies, firms, AOPs, BOIs, local authorities and other artificial judicial persons. Thus, the restriction is on receipt of money by any individuals, HUFs, companies, firms, AOPs, BOIs, local authorities and other artificial judicial persons. from any other s individuals, HUFs, companies, firms, AOPs, BOIs, local authorities and other artificial judicial persons.
  • Nature of amount: Section 269 ST applies if any type of amount of Rs 3 Lakh or above received in cash whether capital in nature or revenue in nature .
  • Exemption from Section 269ST:- Restriction on cash receipt of Rs 3 Lakh or more w.e.f 01.04.2017 shall not apply to
    • Government, any banking company, post office savings bank or co-operative bank. Thus, any amount of money can be deposited in cash etc. in the all type of accounts (e.g., saving account, current account, loan accounts etc.) by account holder, borrower etc. Similarly, any amount of tax, duty etc. can be paid to the Central Government, State Government  etc. (other than local authority) through cash etc. other modes [ It is to be noted here that the above exemption is only for the limited purpose of receipts by the banks etc. and not for payments by the banks etc. ]
    • any receipt from sale of agricultural produce by any person being an individual or Hindu Undivided family in whose hands such receipts constitutes agricultural income and [ As mentioned in Notes to Clause 83 of Finance Bill 2017 . But this transaction is not appearing in the Section 269ST ]
    • Transactions of the nature referred to in section 269SS; (Note : There is limit in section 269SS for  taking or accepting loans, deposits and any sum of money receivable, whether as advance or otherwise, in relation to transfer of an immovable property, whether or not the transfer takes place , of Rs 2000o or more through banking channel ]
    • Such other persons or class of persons or receipts, as may be specified by the Central Government by notification in the Official Gazette.
  • Penalty for Contravention of Section 269ST:- Penalty on a person who receives a sum in contravention of the provisions of the proposed section 269ST. The penalty is proposed to be a sum equal to the amount of such receipt. The said penalty shall however not be levied if the person proves that there were good and sufficient reasons for such contravention. It is also proposed that any such penalty shall be levied by the Joint Commissioner. [ Note : penalty is not for showing “ reasonable cause ” but for showing good and sufficient reasons” ] It is possible that a particular cause may very well be a reasonable cause but not a “good and sufficient reasons”
  • No Penalty on Payer of money in Cash of Rs 3 Lakh or above :- The restriction U/s. 269ST is only on receipt of money and not on payment of money. Therefore, penalty U/s. 271DA on violation of these provisions shall be leviable only on the person receiving money and not on the person paying the money.
  • Character of receipt irrelevant :  The character of receipt is irrelevant i.e. exempt income / taxable income etc. There is no exemption even for sale of agricultural produce. Thus even if farmer sells produce for Rs 3 Lakh or above he can not receive in cash.
  • Purpose of Receipt is irrelevant :The restriction of receipt of money in Cash of Rs 3 Lakh or above in cash is applicable irrespective of purpose of accepting amount i.e., whether business purpose of personal purpose or as a trustee, custodian etc.
  • Consideration is not relevant :- Restriction of receipt of money in Cash of Rs 3 Lakh or above in cash is applicable irrespective of the fact that whether the receipt is with or without consideration. In case receipt of money without consideration in contravention of Section 269ST, there will be dual impact, one charge of tax U/s. 56 (in specific cases) as well as levy of penalty U/s. 271DA.
  • Restrictions on receipt from one person in day :-receipt from one person of Rs 3 Lakh or more  in One day not allowed e.g  even though one person may be receiving for various transactions which individually are below 3 lacs to one person. but if aggregate amount of these transactions is Rs 3 Lakh or more , then he can not receive from that person in cash.
  • Restrictions on receipt In respect of single transaction :- e.g If Hospital Bill is Rs 3.10 Lakh .  Thus Hospital can not accept payment from patient in cash.
  • Restrictions in respect of  transactions relating to one event or occasion from a person : e.g if  marriage is one occasion and a person can not receive on his / her marriage even say Rs. 100 from 3000 people as it will amount to Rs. 3,00,000/- [100 X 3000]
  • Chargebility of exchange of money to tax is irrelevant:– Section 269ST will be attracted on receipt of amount of  Rs 3 Lakh or above whether that exchange of money is chargeable to tax or not.  Thus even if receipt of amount of Rs 3 lakh or above in cash is exempt from tax, it will attract section 269ST.
  • Meaning of Amount :- The word used is “Amount” and not “sum”.  The word “Sum” means “sum of money”. The word “Amount”  may includes cash and kind. However it can be logically interpreted that per the Memorandum Explaining Clauses of the Finance Bill 2017  restriction under section 269 ST is put only on receipt of money and not on anything in kind .The heading given there is “ Restriction on cash transactions ” The relevant description given is that ” Black money is generally transacted in cash and large amount of unaccounted wealth is stored and used in form of cash. In order to achieve the mission of the Government to move towards a less cash economy to reduce generation and circulation of black money, Finance Bill 2017 proposed to insert section 269ST “. Budget Speech of Finance Minister also says ” It is proposed to provide that no person shall receive payment or aggregate of payments of an amount of three lakh rupees or more ………………” Further penalty U/s. 271DA what will be the levied for contravention of Section 269ST . Section 271DA starts with ” If a person receives any sum in contravention of the provisions of section 269ST………………….” Therefore, logically it can be inferred from those provisions that section 269ST is in respect of money only.
  • Allowable mode for receipt of money of Rs 3 Lakh or above :-The amount of money of Rs 3 Lakh or above can be received only through
    • (a) an account payee bank cheque ; or
    • (b) an account payee bank draft ; or
    • (c) use of electronic clearing system through a bank account (e.g., NEFT, RTGS, Online transfer from one bank account to another etc.).

Thus the receipt of amount of Rs 3 Lakh or above through any other mode e.g., cash, bearer cheque, crossed cheque, self cheque, transfer entry or adjustment entry in books of account etc. is not allowed.

  • E-wallets/Paytm not covered :- A digital payment e.g. payment by various e-wallets or say payTM which is popular now a days is also hit by this section because these e-wallets / pay-TM are not clearing system using banks. Technically Even a payment by credit card / debit card , Rupay-card may not amount to clearing system through Bank account.
  • Examples on Section 269 ST :   Section 269ST may cover following items i.e Cash Receipt of Rs 3 Lakh or above may not be allowed in the following case :- (list is illusrative only) 
    • Cash withdrawal from Bank by any person ( withdrawal of amount in cash of Rs 3 Lakh or above  etc. from own saving bank account,  Current account, from bank loan accounts like CC Limit, OD limits etc )
    • Gift in cash or in kind. ( Note : Even though gift received from relative, according to provision of section 56(2)(vii) of the I.T.Act,1961, is exempted but if the amount of Gift is Rs 3 Lakh or more is received from relative in cash w.e.f 01.04.2017  assessee has to bear penalty for contravention of this section 269ST )
    • Gift at the time of marriage
    • Amount to be received by hospitals from patients
    • Sale proceeds of goods ( e.g sale  of Old Car for Rs 3.10 Lakh can not be in cash w.e.f 01.04.2017)
    • Sale of Depreciable Capital Assets { Note : Although amount received against  sale of Depreciable capital assets  is being reduced from block of assets and only reduced depreciation is allowable and still sale of this depreciable capital Assets can not happen in cash if the amount of sale proceeds is Rs 3 Lakh or more )
    • Sale proceeds of movable properties
    • Fees, remuneration, salary, dalali, brokerage , contract payments etc.
    • Recovery of loan given and interest thereon (this is not covered presently in Section 269SS ).
    • Gift received on marriage etc. occasion or otherwise
    • Donation receipts by trusts etc.
    • Advance taken by partner of firm, employees from employer, agents from principal etc. for personal purpose or for purpose of business itself
    • withdrawal of capital / profit by a partner of firm from firm.
    • Any Person  receiving amount of Rs 3 Lakh or above in cash as reimbursement may also be covered under section 269st. Thus he can not accept cash f Rs 3 Lakh or above in cash
    • Amount received of Rs 3 Lakh or above in cash through journal entries in books may also be covered under section 269st.  Thus a person may not do transfer entries to clear balance if same person is debtor as well as creditor in books for Rs 3 Lakh or above.

Case Studies on Section 269ST – Cash receipt of Rs 3 Lakh and above w.e.f 01.04.2017

suppose MR A receive from Mr B Rs 300000/- as follow :-

(i) If Mr. A receives a single cash payment upto  Rs. 2,99,999/- from Mr. B in a day there is no violation of this section.

(ii) If Mr. A receives upto  Rs. 2,99,999/ from Mr. B and also  Rs. 2,99,999/ from Mr. C in a day (transaction with Mr. B & Mr. C is not a single joint transaction) then there is no violation.

( iii) If Mr. A receives Rs. 2,99,999/ from Mr. B on one day and Rs.1 on any other day then there is no violation.

( iv) If Mr. A receives  Rs. 1  from Mr. B through account payee cheque and Rs. 2,99,999/   in cash then there will be no violation

Suppose Mr A sells goods of Rs 4 Lakh to Mr B. 

(i) if Mr. A sales goods to Mr. B through a single bill for Rs. 4 lakhs then only less than Rs. 3 lakhs can be received by A from B in cash etc. mode. The rest amount will have to be received through account payee cheque etc. mode only. Even it is not permissible to receive in cash of Rs. 4 lakhs in different days in piecemeal in different days It is so because not only the limit of per day per entity is to be followed but also the limit of per transaction is to be followed simultaneously.

Single Transaction Jointly with Two or more persons

If a transaction is a joint transaction with many entities in such a situation also this limit will be a consolidated limit in respect of all the payees for that single transaction. Separate limits will not be available in respect of each payee in respect of a single transaction.

For Example- Mr. A sold goods to Mr. B and Mr. C jointly for Rs. 4 lakhs through a single bill. Then total amount of only less than Rs. 3 lakhs can be received in cash etc. from Mr. B and Mr. C. It is not permissible that Rs. 2 lakhs in cash etc. is received from Mr. B and rest Rs. 2 lakhs is received from Mr. C.

Transactions relating to one event or occasion from a person

If a person has done work of different nature in a marriage of his customer, e.g, given garden on rent for marriage reception, given tent house services, done decoration and has issued three different bills of Rs. 2 lakhs each for each separate service (total Rs. 6 lakhs), then he can receive only 3 lakhs from his customer in cash etc. mode in respect of all the 3 bills / transactions. If entire Rs. 6 lakhs can not be taken in cash because even though the limit of per transaction and also limit per day per entity is not crossed, but since all the transactions are related with the single occasion of a marriage.

Shortcomings  left in section 269ST

i) when the transactions are not related with a single event or occasion, an entity may prepare many bills of less than Rs. 3 lakhs and may receive a big amount in cash (complying with per day per entity limit).

ii) In clause (c) the words “from a person” have been used. Due to this now the language has became that “No person shall receive an amount of three lakh rupees or more in respect of transactions relating to one event or occasion from a person”. In cases where there are more than one transaction and they are related with one event or occasion, the entity will fell in clause (c) and in such a situation, separate limit will became available for different persons in a joint transaction.
For example, if for a marriage there are 3 different bills of Rs. 2 lakhs each (total Rs. 6 lakhs), and all the three bills are in the name of three different persons say one bill (garden on rent for marriage reception,) of Rs. 2 lakhs is in the name of the person who is being married, second bill (given tent house services)  is in the name of father of that person for Rs. 2 lakhs and the third bill (for decoration ) is in the name of the mother of that person for Rs. 2 lakhs. Then in such a situation entire Rs. 6 lakhs can be paid in cash etc. mode i.e., Rs. 2 lakh by the person being married, Rs. 2 lakhs by the father and Rs. 2 lakhs by the mother. Even if all the bills are in the joint names of three persons then also the payment can be made in the above manner.

Note : It is not possible that any of the above bill is received from two persons e.g bill of garden on rent for marriage reception say of Rs 4 Lakh can not be received in cash say Partly Rs 2 Lakh from father and partly Rs 2 lakh from son because in respect of clause (b) of section 269st  the payment by multiple persons (over limit) is not possible because the word “from a person” has not been used there Minister on Section 269ST

Budget Speech 2017 of Finance Minister on Section 269ST

[  Para 2.13 of Annex III to Part B of Budget Speech 2017-Direct taxes ] 

It is proposed to provide that no person shall receive payment or aggregate of payments of an amount of three lakh rupees or more from a person in a day, or in respect of a single transaction, or in respect of transactions relating to one event or occasion, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account. Such restriction shall not apply to Government, banks or such other persons or class of persons or receipts notified by the Central Government. It is also proposed to provide for a penalty in case of contravention of this provision.

Relevant Memeorandum Explaning the Caluses of Finance Bill on insertion of New Section 269ST in Income tax Act

Restriction on cash transactions

In India, the quantum of domestic black money is huge which adversely affects the revenue of the Government creating a resource crunch for its various welfare programmes. Black money is generally transacted in cash and large amount of unaccounted wealth is stored and used in form of cash.

In order to achieve the mission of the Government to move towards a less cash economy to reduce generation and circulation of black money, Finance Bill 2017 proposed to insert section 269ST in the Income Tax Act to provide that no person shall receive an amount of three lakh rupees or more,

(a) in aggregate from a person in a day;

(b) in respect of a single transaction; or

(c) in respect of transactions relating to one event or occasion from a person,

otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account.

Finance bill 2017 further proposed to provide that the said restriction shall not apply to Government, any banking company, post office savings bank or co-operative bank.

Further, Finance bill 2017 proposed that such other persons or class of persons or receipts may be notified by the Central Government, for reasons to be recorded in writing, on whom the proposed restriction on cash transactions shall not apply. Transactions of the nature referred to in section 269SS are proposed to be excluded from the scope of the said section.

Finance Bill 2017 also proposed to insert new section 271DA in the Act to provide for levy of penalty on a person who receives a sum in contravention of the provisions of the proposed section 269ST. The penalty is proposed to be a sum equal to the amount of such receipt. The said penalty shall however not be levied if the person proves that there were good and sufficient reasons for such contravention. It is also proposed that any such penalty shall be levied by the Joint Commissioner.

It is also proposed to consequentially amend the provisions of section 206C to omit (delete)the provision relating to tax collection at source at the rate of one per cent. of sale consideration on cash sale of jewellery exceeding five lakh rupees.

These amendments will take effect from 1st April, 2017.

[Clauses 71, 83 & 84]

Relevant Extract of Clause 71 of Finance Bill 2017

Amendment of section 206C.

In section 206C of the Income-tax Act,—

(a) in sub-section (1D),—

(A) for the words and brackets “or jewellery or any other goods (other than bullion or jewellery)”, the words and brackets “or any other goods (other than bullion)” shall be substituted;

(B) clause (ii) shall be omitted;

(b) in sub-section (1E), the words “or jewellery” shall be omitted;

(c) in the Explanation occurring after sub-section (11),—

(A) in clause (aa),—

(I) in sub-clause (ii), the words, brackets, figure and letter “or sub-section (1F)” shall be omitted;

(II) after sub-clause (ii), the following sub-clause shall be inserted, namely:—

“(iii) sub-section (1F) means a person who obtains in any sale, goods of the nature specified in the said sub-section, but does not include,—

(A) the Central Government, a State Government and an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or

(B) a local authority as defined in Explanation to clause (20) of section 10; or

(C) a public sector company which is engaged in the business of carrying passengers.”;

(B) clause (ab) shall be omitted.

Relevant Extract of Clause 83 of Finance Bill 2017 [ Section 269ST]

Insertion of new section 269ST. – Mode of undertaking transactions.

After section 269SS of the Income-tax Act, the following section shall be inserted, namely:—

‘269ST. No person shall receive an amount of three lakh rupees or more—

(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,

otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account:

Provided that the provisions of this section shall not apply to—

(i) any receipt by—

(a) Government;

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

(ii) transactions of the nature referred to in section 269SS;

(iii) such other persons or class of persons or receipts, which the Central Government may, by notification in the Official Gazette, specify.

Explanation.—For the purposes of this section,—

(a) “banking company” shall have the same meaning as assigned to it in clause (i) of the Explanation to section 269SS;

(b) “co-operative bank” shall have the same meaning as assigned to it in clause (ii) of the Explanation to section 269SS.’..

Relevant Notes on Clause 83 of Finance Bill 2017

Clause 83 of the Bill seeks to insert a new section 269ST in the Income-tax Act relating to mode of undertaking transactions.

It is proposed to provide that no person shall receive an amount of three lakh rupees or more, in aggregate from a person in a day; or in respect of a single transaction; or in respect of transactions relating to one event or occasion from a person, otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account.

It is further proposed to provide that the said restriction shall not apply to Government, any banking company, post office savings bank or co-operative bank, any receipt from sale of agricultural produce by any person being an individual or Hindu Undivided family in whose hands such receipts constitutes agricultural income and in respect of transactions of the nature referred to in section 269SS; and such other persons or class of persons or receipts, as may be specified by the Central Government by notification in the Official Gazette.

This amendment will take effect from 1st April, 2017.

Relevant Extract of Clause 84 of Finance Bill 2017  -Penalty for contravention of Section 269ST

Insertion of new section 271DA

Penalty for failure to comply with provisions of section 269ST.

After section 271D of the Income-tax Act, the following section shall be inserted, namely:—

“271DA. (1) If a person receives any sum in contravention of the provisions of section 269ST, he shall be liable to pay, by way of penalty, a sum equal to the amount of such receipt:

Provided that no penalty shall be imposable if such person proves that there were good and sufficient reasons for the contravention.

(2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner.”.

Relevant Notes on Clause 84 of Finance Bill 2017

Clause 84 of the Bill seeks to insert a new section 271DA of the Income-tax Act relating to penalty for failure to comply with provisions of section 269ST.

It is proposed to provide that if a person receives any sum in contravention of the provisions of section 269ST, he shall be liable to pay, by way of penalty, a sum equal to the amount of such receipt. It is further proposed that the penalty shall not be imposable if such person proves that there were good and sufficient reasons for the contravention. It is also proposed that any such penalty shall be imposed by the Joint Commissioner.

This amendment will take effect from 1st April, 2017.

Related Post on Budget 2017-18

Budget Speech 2017-18 -Download /Print

Finance Bill 2017 -Download /Print -Budget 2017-18

Memorandum Explaining Provisions in Finance Bill 2017

Updates  on Union Budget 2017-18

Books on Budget 2017-18

Section 269ST - cash exceeding Rs 3 lakh

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