Section 269ST was introduced through Finance Act 2017. The main purpose to bring this section was to curb the unaccounted money circulating in the country. To achieve the mission of the Government to move towards a less cash economy, to reduce the generation and circulation of black money, this section came into legislation.
The Section 269ST titled “Mode of undertaking transactions” read as follows:
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.
Before moving further to the Proviso of this section, we need to understand few things here. A question arises to mind after reading the first line of the section who are person covered under this section?
To get the answer, we will first understand the definition of “Person” given under Section 2(31) of the Act.
As per clause 31 of Section 2 of the Act, “Person” includes
(i) an individual,
(ii) a Hindu undivided family,
(iii) a company,
(iv) a firm,
(v) an association of persons or a body of individuals, whether incorporated or not,
(vi) a local authority, and
(vii) every artificial juridical person, not falling within any of the preceding sub-clauses.
Explanation. —For the purposes of this clause, an association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains.
As the definition of “Person” in Section 2(31) is an inclusive one which states that “Person” includes the person mentioned in sub-clause (i) to (vii) above. So, after reading the definition of “Person” it is cleared that Section 269ST applies to all persons as defined in Section 2(31).
Another question arises in mind Whether restriction mentioned in Section 269ST will be applicable only when the Person is liable to tax under the Act or apply to all person irrespective of the fact, that person is not liable to tax. We will understand this situation with few examples:
|Examples||Applicability of Section 269ST (Yes/No)|
|1. Mr. X, a businessman has a total income during the year is Rs. 10 Lakhs.||Yes|
|2. Mr. X, a businessman has a total income during the year Rs. 2 lakhs.||Yes|
|3. ABC & Co. a partnership firm follows presumptive taxation.||Yes|
|4. Mr. A, a super senior citizen whose income up to Rs. 5 lakhs is exempt.||Yes|
|5. Mr. A, a senior citizen whose income up to Rs. 3 lakhs is exempt.||Yes|
|6. Mr. B, a farmer generates income from Agricultural Activity.||Yes|
|7. M/s XYZ private limited is exempt from paying the tax due to certain incentives or relaxation under the Income Tax Act.||Yes|
|8. Mr. C received a cash gift on his marriage which is exempt under section 56(2)(x)||Yes|
|9. Mr. C above received a cash gift otherwise than on marriage.||Yes|
|10. Any Trust/Educational Institution/Hospital or other institution whose income is exempt by virtue of Section 10(23C)||Yes|
The reason behind mentioning the above example is very clear that Section 269ST does not differentiate among the person who is liable to pay tax or the person who is not liable to pay tax. It simply says that “No Person” shall receive an amount of two lakh rupees or more. It applies equally to an assessee as well as a non-assessee.
But one point to consider here is if a person not liable to pay tax or who is not an assessee under the Income Tax Act received the amount in cash more than the specified in Section 269ST, the moment he receives cash more than the limit specified in Section 269ST he will become an assessee under the Act. Let’s understand this situation with an example:
Example: Mr. A, having NIL income in a previous year. Now as per Income Tax Act he will not be called an assessee because his total income is less than the maximum amount not chargeable to tax and he is not liable to pay any tax. But in case he receives an amount of two lakh rupees or more, then the provision of Section 269ST will get attracted and he will be liable to pay, by way of penalty, a sum equal to the amount of such receipt under section 271DA.
Now, when he liable to pay a penalty, he will be covered under the definition of an assessee under the Income Tax Act since Income Tax Act defines “Assessee” under Section 2(7) as “assessee” means a person by whom any tax or any other sum of money is payable under this Act…… In the given example Mr. A who was not an assessee earlier is now covered under the definition of an assessee by virtue of section 2(7) as he is liable to pay a penalty.
Now if proceed further there are three clauses under Section 269ST which are as follows:
(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,
Let’s understand the above clauses with the help of examples.
|Examples||Clause to Section 269ST applicable||Reason|
|1. Mr. A sold his car for Rs. 3,00,000 and received the money in cash||ü||A person shall not receive Rs. 2,00,000 or more in cash in aggregate from a person in a day|
|2. Ms. C receives a gift from his relative on his marriage Rs. 2,50,000.||ü||As a gift from a relative on marriage is exempt under section 56(2)(x) but the cash limit specified in section 269ST will be applied to this transaction. Hence, it will be covered under clause (a) of section 269ST.|
|3. Mr. X withdraws cash from the bank more than Rs. 2 Lakh in a day.||NA||NA||NA||Section 269ST is not applicable on cash withdrawal from any banking company, post office savings bank, or co-operative bank (Refer Notification No.28/2017, F.No.370142/10/2017-TPL)|
|4. XYZ Co. sold goods worth Rs. 2,00,000 and received amount in cash||ü||A person shall not receive Rs. 2,00,000 or more in cash in aggregate from a person in a day|
|5. XYZ Co. sold goods worth Rs. 10,00,000 to Mr. B on 20.05.2020 and received the amount as follows:
21.05.2020 – Rs. 150000 in cash
22.05.2020 – Rs. 150000 in cash
24.05.2020 – Rs. 150000 in cash
24.05.2020 – Rs. 5,50,000 through A/c Payee Cheque
|ü||As XYZ co. received only Rs. 1,50,000 in cash on multiple dates which is less than the specified amount received in a day but still it is prohibited because Claus (b) says No person shall receive Rs. 2,00,000 or more in respect of a single transaction. In the given case XYZ can only receive Rs. 1,99,999 in respect of a given transaction.|
|6. ABC & Co. provided decoration services and catering services to its client and issued bill as follows
Bill No. 1 (For Decoration services) – Rs. 4,00,000. Against this bill Rs. 50,000 received in cash
Bill No. 2 (For catering services) – Rs. 5,00,000. Against this bill Rs. 50,000 received in cash.
Bill No. 3 (For other services) – Rs. 2,00,000. Against this bill Rs. 1,00,000 received in cash
|ü||If we see carefully, ABC & Co. did not receive more than a specified amount in cash against each transaction. Hence the question of applicability of clause (b) does not arise. But if we move further to clause (c) it says, a person shall not receive a specified amount in respect of transactions relating to one event or occasion from a person. As it is evident in the example that ABC & Co. issues 3 bills for different services but it was related to one event which was marriage. Hence the limit of Rs. 20000 will be checked event wise not transaction-wise.|
Non-Applicability of this section: This provision of this section does 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 “Mode of taking or accepting certain loans, deposits, and specified sum”
(iii) such other persons or class of persons or receipts, which the Central Government may, by notification in the Official Gazette, specify.
Permissible Mode of Receipt are:
i) Account Payee Cheque,
ii) Account payee Bank Draft,
iii) Electronic Clearing system through a bank account, or
iv) Such other electronic modes may be prescribed. Other electronic modes prescribed under Rule 6ABBA are:
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.
Penalty on failure to comply with Section 269ST:
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.