Sec 269ST of The Income Tax Act, 1961 states that
No person 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.
Provided that the provisions of this section shall not apply to—
(i) any receipt by—
(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, – Ø “banking company” shall have the same meaning as assigned to it in clause (i) of the Explanation to section 269SS; Ø “co-operative bank” shall have the same meaning as assigned to it in clause (ii) of the Explanation to section 269SS.
The Central Board of Direct Taxes has prescribed other electronic modes to provide for the followings 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. This rule has been given a retrospective effect and will come into force from 01- 09-2019 even though the notification was issued on 29-01-2020.
The above section was inserted in the Income Tax Act, 1961 by the Finance Act, 2017. The government has aimed to curb generation of black money, to move towards less cash economy and promote digital economy. The government has attempted to target and penalize receiver instead of payer. It is applicable whether the recipient person is a seller of goods or provider of service transferor of capital assets or any other person. Further, section begins with words ‘no person’ which means this section is applicable to all whether individual, company, firm, trust or association of persons. This section is applicable to residents and non residents.We shall divide the section into 5 parts to understand it in a better way:
A. No person shall receive an amount of two lakh rupees or more in aggregate from a person in a day
The first clause of the section has restricted any person, to not receive an amount of Rs. 2 Lakh or more from a person in a day otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account. Here purpose of the payment is irrelevant. The main focus is ‘from a person’ and ‘in a day’. The restriction is applicable even if the different receipts are in relation to distinct transactions entered into on same day or different days. This section will be violated if following four pre-requisites are fulfilled:
i) There is single payer
ii) There is a single receiver.
iii) The payment is in single day.
iv) The amount received by the person in cash is Rs. 2 Lakhs or above.
The payment may be towards two separate invoices of different dates and each invoice below Rs. 2 Lakh, but the person cannot receive Rs. 2,00,000 or more in cash from a person in aggregate in a single day. We shall understand this with the help of following examples:
Example 1: ABC & Co. issued invoice of Rs. 1,60,000 to Mr. Bhushan on 15/04/2020 and another invoice of Rs. 1,25,000 on 16/04/2020. Can ABC & Co receive the payment of Rs.2,85,000 in cash/ bearer cheque on 17/04/2020?
No, as the aggregate of both the invoices exceeds Rs. 2,00,000; ABC & Co. cannot receive the whole amount in cash/ bearer cheque. Only amount upto Rs. 1,99,999 can be received in cash/ bearer cheque in single day.
Example 2 Suppose in above example, Rs 1,80,000 is received in cash from Mr. Bhushan and balance Rs. 1,05,000 is received from Mrs. Bhushan (Mr. Bhushan’ wife) on 17/04/2020. Is there any violation of law?
There is no violation of law in this case. ABC & Co. can receive the amount in cash from 2 different persons as the first limb restricts receiving cash of Rs. 2 lakh or more from ‘a person’ in a day.
B. In respect of a single transaction
This part of the section restricts receipt of Rs. 2,00,000 or more in respect of a single transaction otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account. Here the major focus is on ‘single transaction’. The number of installments or parts in which payment is made is irrelevant. Further, here word ‘a person’ is not used. Therefore, the recipient cannot receive Rs.2,00,000 or more in cash in a single transaction even if different persons are making payment. However, if the each of invoice amounts are below Rs. 2 Lakh, this provision may not be contravened. The pre-requisites for section to be violated are:
i) Single Receiver
ii) The cash payment relating to a particular transaction is Rs. 2,00,000 or more.
If the parties try to split their payments, such that one transaction is given effect to over multiple days like making payments of Rs. 10,000 on different dates in respect of a single transaction, then obviously it will not fall under first clause as aggregate is out of question being payments received on different dates but is covered by second clause.
Example 3 M/s Lotus Chemicals issued invoice of Rs. 7,50,000 to their customer on 19/12/2019. The customer intends to make payment in cash in 10 weekly installments of Rs. 75,000 each. Whether M/s Lotus Chemicals can accept the above proposal?
M/s Lotus Chemicals cannot accept the above proposal as the cash receipts (though on different dates) are towards a single transaction and exceeds Rs. 2 Lakh.
Example 4 Mr. Gupta bought car of Rs. 3,50,000 on 15/03/2020. The car seller receives Rs. 1,80,000 from Mr. Gupta and Rs. 1,70,000 from his son. Whether Sec 269ST has been violated?
The car seller has violated the section as the total cash receipt relating to a particular transaction (sale of car in this case) exceeds Rs. 2,00,000. It is immaterial that the none of the payer has paid Rs. 2 Lakh or above. The recipient can receive upto Rs.1,99,999 in cash and balance through account payee cheque/ draft or ECS.
Example 5: M/s ABC & Co. sold a machinery for Rs. 6,00,000 to 3 different persons X, Y and Z
|Cash Receipt on 13/10/2019||2,50,000||1,90,000||–|
|Cash Receipt on 20/10/2019||–||1,90,000||1,50,000|
|Receipt by account payee cheque||3,50,000||2,20,000||4,50,000|
|Total cash Receipts||2,50,000||3,80,000||1,50,000|
|Whether Sec 269ST violated||Yes||Yes||No|
|Penalty u/s 271DA on M/s ABC & Co.||2,50,000||3,80,000||Nil|
CBDT vide Circular 22/2017 dated 3rd 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.
C. In respect of transactions relating to one event or occasion from a person
This clause attempts to target transactions scattered over different days but relating to a single event or occasion. Here major focus is ‘one event or occasion’ and ‘a person’. Pre-requisites for attraction of this section shall be:
i) Single Receiver
ii) Single Payer
iii) Cash payment relating to single event/ occasion is Rs. 2 Lakhs or more.
The definition of the words ‘event’ or ‘occasion’ has not been given in section 269ST. Further, no clarification has been given by the CBDT through any circular etc. Similarly, no direct judicial decisions are presently available on the scope of the above words. Therefore, lot of confusion has got created regarding the meaning and scope of the above two words. The dictionary meaning of the word ‘event’ is ‘something that happens at a given place and time’. Similarly, the dictionary meaning of the word ‘Occasion’ is ‘a time when something happens, or a case of it happening’. Further, the word ‘event’ or ‘occasion’ in the law are vague and may cause a lot of confusion. The intent behind the provision is that people may not split their payments into various tranches and avoid the provision. The extended scope of the offence of the section is, therefore, anti-avoidance, and not to extend the scope of the provision to smaller value transactions which otherwise are not hit by the section.
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.
Example 6 Mr. Puneet receives following gifts on his marriage:
|1||Receives shagun of Rs.1,000 each in cash from 220 persons||No||None of the person gifted Rs.2 Lakh or more in cash.|
|2||Receives shagun of Rs.1,11,000 from his uncle on the marriage day and Rs.1,51,000 on the day of reception.||Yes||As the total cash
receipt from a personrelating to occasion‘marriage’ exceeds
Rs. 2 Lakh
|3||His uncle gifted Rs. 1,70,000 to him and Rs. 81,000 to his mother in cash||No||No person has received Rs.2 Lakh or more in cash.|
Example 7 M/s Tania Event Managers arranged a marriage function in February 2020. An invoice of Rs. 1,80,000 was issued on 22/02/2020 for ‘Ring Ceremony’ and an invoice of Rs. 1,90,000 on 23/02/2020 for marriage day. Bride’s father intends to make whole payment in cash. His opinion is that as each transaction is below Rs. 2 Lakh and payment is on different dates, the event management firm can accept the payment.
M/s Tania Event Managers should not accept the whole payment in cash. Though each invoice is below Rs. 2 Lakh and payment is on different dates, but the cash payment relates to a single event.
Example 8 Suppose in above example, the payment of ring ceremony function is by bride’s mother and payment of marriage function is by bride’s father?
Now there is no violation of law, as payment is from different persons and not from a single person
D. Exemptions: The above provisions are not applicable in the following cases
Receipt by Government;
Receipt by any banking company, post office savings bank or co-operative bank
Transactions of the nature referred to in section 269SS i.e. acceptance of loans/ deposits/ specified advance.
persons/receipts notified by government:
E. Penalty u/s 271DA- If any person violates sec 269ST, then penalty shall be levied @ 100% of such receipt. Example: If any person issues invoice for Rs. 5,00,000 and receives Rs. 3,00,000 in cash and Rs. 2,00,000 by cheque. Then penalty of Rs. 3,00,000 shall be levied.
However, if that person proves that there were good & sufficient reasons for the contravention, no penalty shall be levied.
Some FAQs related to Sec 269ST
Q 1. Whether Sec 269ST applies to receipt of exempt income?
Ans. Yes, Sec 269ST applies to all types of receipts whether exempt or taxable except the receipts specifically notified by government. Therefore, section shall also apply to receipt of payment by farmers.
Q 2. Whether Sec 269ST applies to receipt of payment for personal purpose?
Ans. Yes, Sec 269ST applies to payments for personal purpose. There is no difference whether the receipt is for personal or business purpose or whether it is a revenue or capital receipt.
Q 3. What is the maximum amount of cash memo that can be issued?
Ans. Cash Memo can be issued up to Rs 1,99,999 (including taxes). Any cash memo above that will lead to contravention of this section. But the assessee has to follow the limits to issue cash memo under other laws.
Q 4. Can my customer deposit Rs. 2,00,000 or above in cash directly to my bank account?
Ans. No, the customer cannot deposit Rs. 2,00,000 or above in cash directly to bank account because the section allows receipt of Rs. 2 Lakh or above only by account payee cheque/ draft or electronic clearing system through bank account.
However, as per The Bangalore Bench of ITAT in Sri Renukeswara Rice Mills v. ITO  93 ITD 263, it had held in the context of section 40A(3) that where the payments are made otherwise than by account payee cheque directly in the bank account of the payee, it meets with the intention of the Legislature and no disallowance can be made under section 40A(3). Therefore, direct deposit in bank account of payee may be regarded as complying with section 269ST.
Q 5. Will this section apply to introduction of capital by a partner to the firm?
Ans. Yes, This transaction is related to the receipt by the firm from its partner. The provisions
of Section 269ST are very well applicable to this also. 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.
It is applicable (i) whether the receipt is for business purpose or for personal purpose (ii) whether the receipt is with or without consideration (iii) whether the receipt is of capital or revenue nature.
However, there is some ambiguity here. On this issue there are two school of thoughts for the applicability of sec 269ST.The first school of thought states that whether the introduction of capital by the partner each and every time is a separate transaction or part of the same transaction. If we follow first school of thought that introduction of capital by the partner each and every time is a separate transaction, a partner can introduce up to Rs. 1,99,999 for any number of times in cash. If the latter school of thought is accepted, then the partner can introduce up to Rs. 1,99,999 in cash once in entire tenure of firm.
Q 6. Will this section apply to introduction of capital by a sole proprietor?
Ans. No, this section will not apply to introduction of capital by a sole proprietor as the proprietor and his business concern are one and same person.
Q 7. Mr. Bajaj borrowed Rs. 4,00,000 in cash from Mr. Akash. Later he repaid Rs. 2,50,000 in cash. State the applicability of Sec 269SS, 269T and 269ST?
Ans. Mr. Bajaj has violated sec 269SS by accepting cash loan of Rs. 20,000 or more and penalty shall be levied u/s 271D on borrower (Mr. Bajaj). However Sec 269ST shall not be applicable even if amount exceeding Rs. 2,00,000 has been received from a person in a day as transactions covered by 269SS are out of ambit of Sec 269ST.
Regarding repayment of Rs. 2,50,000 in cash, Sec 269T has been violated by Mr. Bajaj as loan has been repaid in cash exceeding Rs. 20,000 and penalty shall be levied u/s 271E on the person who is making repayment (Mr. Bajaj).
Sec 269ST has been violated by Mr. Akash as he has accepted cash of Rs. 2,50,000 from a person in a day. Penalty u/s 271DA shall be levied on recipient (Mr. Akash).
Q 8. Will sec 269ST be applied on cash gifts, even if such cash gifts have been taxed u/s 56(2)(x)?
Ans. Yes, sec 269ST will be applied 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.
Q 9. X was hospitalized in DAC Hospital. The bill amount for treatment, testing charges, room rent and other charges was Rs. 4,45,000. What is the maximum amount hospital can receive in cash?
Ans. The hospital can receive up to Rs. 1,99,999 in cash and balance through modes allowed u/s 269ST. The reason being, the treatment of a patient is a single transaction and hence covered by clause (b). Even if separate invoices are issued for treatment, testing charges and other charges, then also it will be covered by clause (c) as curing/ treatment is a single event/ occasion. All the distinct transactions are related to this event.
Q 10. A person bought a car for Rs. 4,00,000 in an exchange offer. His old car was valued for Rs.2,50,000 and he gave Rs. 1,50,000 in cash? Whether sec 269ST contravened?
Ans: No, the section has not been contravened as the section applies only to cash component in the transaction.Therefore, section has to be applied net of exchange value. This is evident from the objective behind the insertion of section 269STwhich was explained by CBDT circular No.dated 15.02.2018 in para 77 as under
“77.1 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.
77.2 In order to achieve the mission of the Government to move towards a less cash economy to reduce generation and circulation of black money, a new section 269ST has been inserted in the Income-tax Act͙.”
It is evident that receipts in kind are not the intention of the law and can not be regarded as receipt of amount within the meaning of section 269ST.
Q 11. Five separate invoices of Rs. 60,000 each were issued to a customer. The customer intends to make cash payment in installments of Rs. 10,000 each on daily basis. State the applicability of Sec 269ST and 40A(3)?
Ans. As per sec 40A(3), if any payment is made by an assessee to a person in a day above Rs.10,000, other than by account payee cheque/ draft or ECS through bank account, then expenditure shall be disallowed i.e the expenditure shall not be allowed as deduction. For this reason, generally cash payments by debtors to any person are made up to Rs.10,000 only per day. However, this does not bind the recipient to accept only up to Rs. 10,000 per day from any customer.
In this case the recipient can accept up to Rs. 1,99,999 per day from the customer as each invoice is less than Rs. 2 Lakh. However, the customer has to examine the applicability and impact of sec 40A (3).
Q 12. One of the doubtful debtors, who was not clearing his dues suddenly camp up and offered to settle his account and pay Rs. 3,00,000 in cash. Whether money can be accepted in cash?
Ans. As per sec 269ST, cash of Rs. 3,00,000 from a person in a day cannot be accepted.
However, as per sec 271DA penalty may not be imposed if the recipient proves that there were good & sufficient reasons for the contravention. In this case, if the person has documentary proofs and evidences that the debtor was not clearing his dues and in past he was unable to recover the amount, penalty may not be imposed.
CA R.S. Kalra (98889-27000, firstname.lastname@example.org)
CA Jasmeet Singh (86997-01271, email@example.com)