Restrictions on Cash Transactions- Part- I

1. Section 269ST of the Income Tax Act, 1961 (‘the Act’) prohibits receipt of cash equal to or more than Rs. 2,00,000/- in either of the three situations enumerated in the section. The liability to comply with the provision is on the receiver, meaning thereby, that if such a transaction gets reported to the Revenue, it won’t take any action against the payer but against the receiver, it will levy a penalty (under Section 271 DA of the Income Tax Act, 1961) equivalent to the entire amount received.

The Section requires that no one shall receive an amount of two 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 [or through such other electronic mode as may be prescribed]

The Central Board of Direct Taxes has prescribed the following other electronic modes as an acceptable electronic mode of payments–

(a) Credit Card;

(b) Debit Card;

(c) Net Banking;

(d) IMPS (Immediate Payment Service);

(e) UPI (Unified Payment Interface);

(f) RTGS (Real Time Gross Settlement);

(g) NEFT (National Electronic Funds Transfer), and

(h) BHIM (Bharat Interface for Money)Aadhar Pay”.

For this purpose, a new Rule 6ABBA with the heading ‘Other electronic modes’ is introduced in the Income Tax Rules, 1962.

2. Exceptions

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.

3. Penalty under S. 271DA

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.

4. Time Limit of initiation of Penalty Proceedings

The Act does not specify any express time limit for initiation of penalty proceedings. In law, where there is no period of limitation, the power must be exercised within reasonable time.

5. Appeal under Section 246A against Order passed under Section 271DA

Section 246A(1)(q) provides that any ‘assessee’ or any ‘deductor’ or any ‘collector’ aggrieved by any of the order under Chapter XXI of the Act may appeal to the Commissioner (Appeals). An order imposing a penalty under Section 271DA is an order under Chapter XXI of the Act. But the recipient needs to be an assessee to file an appeal against the penalty order. However, since there is no express prohibition against an appeal against an order under section 271DA, an appeal provision has to be liberally construed and an appeal against the penalty order under section 271DA should be allowed.

CORE OF S. 269ST

• Restriction is applicable on ‘Persons’: The restriction u/s 269ST is applicable on all the persons. Under Section 2(31) of the Act, ‘person’ includes individuals, HUFs, companies, firms, AOPs, BOIs, local authorities and other artificial juridical persons.

• The applicability of the restriction is not dependent on whether the receipt is for business purpose, personal purpose or any other purpose. Nonetheless, Section 269ST is not applicable to the transactions whereby loan or deposit is received or money is received for transfer of immovable property. There are separate provisions restricting receipt of money in cash etc. for such purposes and the cap on cash payment in such cases is 20,000/- only.

• Character of Receipt is not to be seen- If cash of Rs. 2,00,000/- or more is received as a gift by a person from a specified relative, the amount would not be treated as tax exempt under the provision of section 56(2)(vii) of the Income Tax Act, 1961 in the hands of the donee but it will constitute a violation of Section 269ST.

• Whether receiver has a PAN or not is irrelevant.

• If the receiver asks the payer to deposit cash in his bank account, even then the transaction violates Section 269ST of the Act.