CA Taarakesh Sunku

CA Taarakesh Sunku

The Central Government of India (“the Government”) is putting all the efforts to curb the use of cash which is focused on un-accounted transactions. As we all know, not all the transactions that are transacted in cash hold the colour of unaccounted money, the contrary is that all the un-accounted transactions takes place in cash.

The Finance Minister in his budget speech mentioned that the quantum of black money in Indian economy is huge and this is adversely affecting the revenue of the Government. As a result, the Government is facing lot of resource crunch to fund various welfare programs. In a vision to achieve a less cash economy, and to reduce creation and circulation of black money, section 269ST was introduced in the Income-tax Act, 1961. The provision of this section prohibits transactions in cash exceeding Rs. 2 lakhs and leads to a penal provision if the same is violated.

It may be noted that this is not the first of its kind wherein there is restriction imposed on cash transactions. Prior to introduction of this section as well, there were other provisions under the Act which imposes restriction in cash transactions. Few of them are given below:

  • Section 40A – under this provision, there is a disallowance of expense transacted in cash where the amount exceeds Rs. 10,000 made to a single person in a day. As a result, this provision ensures all the expenses (other than those which are petty in nature) are routed through the banking channels.
  • Section 269SS – this provision ensures that no person shall accept from any person by way of loan or deposit in excess of Rs. 10,000 in cash. Any person contravening this provision shall be penalized with a sum equal to the amount of loan or deposit received or accepted.
  • Section 269T – as per the provision of this section, no person shall repay any loan or deposit in the form of cash. Any person contravening the provisions of this section shall be penalized with a sum equal to the amount of loan or deposit repaid.
  • The provisions of the Act also restrict cash transaction by imposing higher tax on transactions made in cash. Section 68, Section 69 and 116BBC.
  • There are further restrictions to cash transactions in the form of TCS and AIR reporting.

With the spirit from the above restrictions on cash transactions, the Government has proposed to restrict cash receipts of Rs. 3 lakhs or more and also to penalize the recipient violating the provisions of this section.

As per the provisions of the proposed section 269ST of the Act, the following transactions are violative:

1. If a person accepts Rs.2 lakhs or more from a single person in a day, even though the receipt is towards different invoices billed to the customer / client. This can be understood with an example, if a shopkeeper sells goods worth Rs. 4,50,000 to a single person in a day under three separate invoices and receive the entire amount in cash in a single day, there is a violation of the provisions of section 269ST.

2. If a person accepts cash aggregating to Rs. 2 lakhs or more with respect to a single invoice. In other words, if a seller sells goods worth Rs. 4,00,000 and raises a single invoice, and receives Rs. 2,50,000 in Day 1 and Rs. 1,50,000 in Day 2, the provisions of section 269ST is again violated.

3. If a person accepts cash amounting to Rs. 2 lakhs or more from a person for a series of transaction arising from a single event or occasion. An example to this would be an event organizer accepting Rs. 5,00,000 in cash and the breakup for this is that Rs. 2,00,000 is towards food, Rs. 2,00,000 is towards decoration and Rs. 1,00,000 is towards table-chairs. Even though the payment is towards three separately identifiable events, they all are for the same transactions and hence the provisions of section 269ST is violated.

However, the provisions of this section has proposed certain exemptions wherein the restriction does not apply to certain transactions. These transactions are:

  • Those made by the Government, any banking company, post office savings bank or a co-operative bank.
  • Such other persons or class of persons or recipients as may be notified by the Government in this regard.
  • Transactions of the nature referred to in section 269SS of the Act.

Further, it is known to all that any provision which is restrictive in nature is of no use without having a penal consequence. Keeping the same in mind, the Government has proposed to introduce section 271DA which is triggered when there is a violation under the provisions of section 269ST of the Act.

The penalty proposed under section 271DA of the Act is a sum equal to the amount of such receipt. Accordingly, if a person receives Rs. 4,50,000 by cash due to some reason from a single person in a day without any reasonable cause, he may end-up paying the same amount by way of penalty to the Income-tax Department.

However, the penalty can be imposed only by a Joint Commissioner. Further, the said penalty shall not be levied if such person proves that there were good and sufficient reasons for such contravention to the provision of section 269ST of the Act.

(Republished with Amendments)

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January 2021