Government of India
Ministry of Finance
5-April-2017 18:44 IST
These prominently include placing restriction on cash transaction by introduction of New Sections 269ST & 271DA to the Income-tax Act. It has been provided that no person (other than those specified therein) shall receive an amount of two 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.
Any contravention to the said provision shall attract penalty of a sum equal to the amount of such receipt. However, the said restriction is not applicable to any receipt by Government, banking company, post office savings bank or co-operative bank. It has also been decided that the restriction on cash transaction shall not apply to withdrawal of cash from a bank, co-operative bank or a post office savings bank. Necessary notification in this regard is being issued.
It has also been provided that any capital expenditure in cash exceeding rupees ten thousand shall not be eligible for claiming depreciation allowance or investment-linked deduction. Similarly, the limit on revenue expenditure in cash has been reduced from Rs.20,000 to Rs.10,000.
In order to promote digital payments in case of small unorganized businesses, the rate of presumptive taxation has been reduced from 8% to 6% for the amount of turnover realised through cheque/digital mode.
Restriction on receipt of cash donation up to Rs. 2000 has been provided on political parties for availing exemption from Income-tax. Further, it has also mandated that any donation in cash exceeding Rs.2000 to a charitable institution shall not be allowed as a deduction under the Income-tax Act.
In Budget 2017-18, a ban on cash transaction of more than Rs 3 lakh has been proposed. The same has been mentioned in the Finance Bill 2017. But, the Govt of India has made amendment in Finance bill and has reduced the Cash transaction limit to Rs 2 Lakh.
This amendment has been passed through Finance Act, 2017 and notified on 31-March-2017. Complete details on Rs 2 Lakh Cash Transaction limit have been provided in a new section referred to as ‘Section 269ST‘.
As per Section 269ST, any person who enters into a transaction of Rs 2 Lakh or above in cash, will be liable to a penalty of an amount equivalent to the amount of transaction.
For example : If you buy an expensive watch for cash worth Rs 5 Lakh, it is the shopkeeper who will have to pay the tax (penalty) of Rs 5 Lakh. So, here the tax rate is 100%.
Though this new section on Cash Transaction limit sounds simple, we need to go through it in details, as I believe that this may have quite an impact on our daily financial lives.
With effective from 1st April, 2017, no person shall receive an amount of Rs 2 Lakh 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.
The new Cash transaction limit is not applicable, if a person receives the amount through an Account Payee Cheque (or) an Account Payee Bank Draft (or) through use of electronic clearing system through a bank account. (Looks like, any receipts done through e-Wallets like Paytm, credit cards etc., may also be hit by this new amendment, need more clarity though.)
Kindly note that Penalty u/s 271DA will be imposed on a person who receives a sum of Rs 2 Lakh and above in cash. The extent of penalty will 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.
Section 269ST & Rs 2 Lakh Cash Transaction Limit – Examples
Let us understand the above three points with examples;
A. Single Person : Cash Receipt of Rs 2 lakh or more, from a single person in a day is not allowed even if the amount has been paid through multiple transactions during the day which are below Rs 2 lakh.
For example : Mr Virat buys a gold chain worth Rs 2 Lakh and pays the amount by cash to Mr Sonesh on a single day in 4 equal installments of Rs 50,000 each. As Mr Sonesh accepted cash worth Rs 2 Lakh from a single person and in a single day, section 269ST is applicable in this case. Sonesh has to pay a penalty of Rs 2 Lakh.
B. Single Transaction : Cash receipts of Rs 2 Lakh or more which are related to a single transaction are prohibited.
For example : Mr Kejriwal goes through a medical surgery and the hospital charges him a bill of Rs 4 Lakh. Kejriwal clears the bill in 4 installments of Rs 1 Lakh each on four different dates. Here, the cash receipts got by hospital are less than Rs 2 Lakh and have been received on different dates.
Whether this transaction violates section 269ST? – Yes. Hospital has to pay the penalty. Because, they received the payments with respect to single bill / transaction. So, splitting of payments over several days is prohibited.
C. Single Event / Occasion : Cash transactions or cash receipts related to a single event or occasion, can not be more than Rs 2 Lakh.
For example : Nagachaitanya gets married to Samantha. On their wedding occasion, their relatives gifted Cash amount worth Rs 10 Lakh on different dates. Even if we assume that each person has gifted cash worth less than Rs 2 Lakh, are these receipts come under the purview of Section 269ST? Is penalty applicable?
Yes, penalty can be levied. Here, marriage is a ‘single occasion’ and cash gifts worth Rs 2 Lakh or more can not be received from relatives and other persons.
Can I make Cash Deposit / Cash Withdrawal of more than Rs 2 Lakh from my Bank?
What if you would like to make cash withdrawal from your bank account or ATM an amount of Rs 2 Lakh or more in a single day? Yes, you will be liable to pay penalty of equal amount. For example, if you withdraw Rs 10 Lakh from Bank on a single day, you are liable to pay penalty of Rs 10 lakh irrespective of how you are going to use that amount. So, Cash withdrawals of Rs 2 Lakh or more, from your Bank through your saving bank account, Current account, bank loan accounts like CC Limit, OD limits etc., are subject to penalty.
Latest Update (05-Apr-2017) : It has been decided by the Govt that the restriction on cash transaction shall not apply to withdrawal of cash from a bank, co-operative bank or a post office savings bank. Necessary notification in this regard is being issued.
What about Cash deposits at Bank? This can be a little tricky.. For example, if you deposit Rs 10 Lakh in a single day in your Bank account, it is then assumed that you have received cash receipts of more than Rs 2 Lakh and the same has been deposited into the banking system. If that is not the case, you may have to prove it otherwise, that you have received this amount from different persons on different dates..
- Based on my interpretation of Section 269ST, payment modes like bearer cheque and self-cheque will also be considered on par with Cash based transactions only.
- It has been clearly stated that penalty (if any) is chargeable to an individual who violates section 269ST, even if you do not have PAN and/or is not a tax assessee.
- The restriction of receipt of money in Cash of Rs 2 Lakh or above in cash is applicable irrespective of whether it is for personal / business purpose, capital or revenue in nature, tax-free or taxable income.
- Kindly note that the payer of money is not liable to pay any penalty, it is the receiver of cash who has to bear the penalty u/s 271DA .
The main objective of the central Govt for implementing this amendment is to discourage payments by cash and curb black money menace to certain extent. Let’s hope that they provide more details / clarity on nitty-gritty of section 269ST & Rs 2 Lakh Cash Transaction limit.
VidyaSunil & Associates is into practice of Tax Complaince, Audit, Accounts , Corporate / Business Finance & Outsourced CFO Services.
Advise for contacting VidyaSunil & Associates;
E Mail ID : firstname.lastname@example.org
Cell No. : +91 9739834819