Reportable / Cash Transactions and TCS – Limit and Penalty

Reportable Transactions, Cash Transactions and Tax Collection at Source – Limit and Penalty as per Income Tax Act, 1961

Article covers Cash Transactions provisions (Section 269SS, 269T, 269ST, 43), Reportable Transaction provisions (Section 285BA, Rule 114E) and Transaction on which Tax has to be collected at Source (TCS) (Section 206C)

In Indian economy, cash transactions has always played a major role and has been a reason for black money. Income Tax Department uncovers the unaccounted cash during raids. Earlier, people used to evade taxes by showing unaccounted cash as receipts of loans/advances/deposits from their friends and relatives and also used to show cash transaction payments as repayment by cash to friends/relatives.

The Government over a period of time has initiated various measures to curb cash transactions and boost digital payments. In addition to Cash Transactions, various other transactions in the nature of Deposits in Bank Accounts, Investments in Shares, Mutual Funds, Debentures, etc are to be reported to Income Tax Department, if they exceed certain limits.

We have divided the article into 3 Sections for ease of understanding and comprehending all such transactions which help in reducing black money by either curbing cash transactions over certain limit or by reporting certain transactions which may help in providing information to the Tax department regarding potential tax evasion.

1. Cash Transactions provisions (Section 269SS, 269T, 269ST, 43)

2. Reportable Transaction provisions (Section 285BA, Rule 114E)

3. Transaction on which Tax has to be collected at Source (TCS) (Section 206C)

1. Cash Transaction Provisions (Section 269SS, 269T, 269ST, 43, 40A(3) and 40A(3A))

A. Section 269SS – Mode of taking or accepting certain loans, deposits and specified sum

A person cannot accept loan or deposit or any “other specified sum” (specified sum here refers to an advance or otherwise, in relation to the transfer of any immovable property) from another person otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, if –

• Amount of loan or deposit or specified sum is Rs. 20,000 or more, or
• Sum total amount of loan, deposit and the specified sum is Rs. 20,000 or more. Example – Person X wants to take a loan of Rs 9000, Deposit of Rs 8000 and Advance of Rs 6000 for sale of immovable property. In such case X cannot accept it in cash because the total sum is 23,000
• In a case where a person had already received a loan, deposit or specified sum from the lender but the loan or deposit or specified sum hasn’t been paid back in such case, if the unpaid loan or deposit or specified sum is Rs. 20,000 or more, or
• Sum total amount of (1), (2) and (3) above is Rs. 20,000 or more.

In short, a person cannot accept any loan or deposit of Rs. 20,000 or more from another person other than through Banking channels.

Exceptions to Section 269SS:

The provisions of this section shall not apply to any loan or deposit or specified sum taken or accepted from, or any loan or deposit or specified sum taken or accepted by,—

• the Government;
• any banking company, post office savings bank or co-operative bank;
• any corporation established by a Central, State or Provincial Act;
• any Government company
• such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette
• by a person, from a person and both of them have agricultural income and neither of them has any income chargeable to tax under this Act

Penalty on contravention of Section 269SS (Section 271D):

Joint Commissioner shall impose penalty of 100% of the amount of loans / deposits / specified sum so taken.

B. Section 269T – Mode of repayment of certain loans or deposits

A person cannot repay any loan or deposit or ‘specified sum’ otherwise than by an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account, if –

• Amount of loan or deposit or specified sum payable, including interest amount, is Rs. 20,000 or more, or
• The aggregate amount of loans or deposits outstanding, including the interest amount, held by such person in his own name, or jointly with any person, is Rs. 20,000 or more.

In short, a person cannot repay the loan or deposit in cash, if the amount is Rs. 20,000 or more.

Exceptions to Section 269T:

The provisions of this section shall not apply to repayment of any loan or deposit or specified advance taken or accepted from—

• Government;
• any banking company, post office savings bank or co-operative bank;
• any corporation established by a Central, State or Provincial Act;
• any Government company
• such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette.

Penalty on contravention of Section 269T (Section 271E):

Joint Commissioner shall impose penalty of 100% of the amount of loans / deposits / specified sum so repaid.

C. Section 269ST – Restriction on Cash Receipts (Inserted by the Finance Act, 2017, w.e.f. 1-4-2017)

Section 269ST of Income Tax Act provides that no person can receive an amount of Rs 2 Lakhs or more in cash:

• In aggregate from a person in a day;
• In respect of a single transaction; or
• In respect of transactions relating to one event or occasion from a person.

It has been clarified vide Circular No 22/2017, dated 3.7.2017 that in respect of receipt in the nature of repayment of loan by NBFCs or Housing Finance Companies (HFCs), the receipt of one instalment of loan repayment in respect of a loan shall constitute a ‘single transaction’ as specified in clause (b) of section 269ST of the Act and all the instalments paid for a loan shall not be aggregated for the purposes of determining applicability of the provisions section 269ST.

Further vide Circular No 27/2017, dated 3.11.2017, any cash sale of an amount of Rs.2 lakh or more by a cultivator of agricultural produce is prohibited under section 269ST of the Act.

Exceptions to Section 269ST:

Provisions of Section 269ST are not applicable, when cash of more than Rs.2 lakhs is received from following person:

• Government;
• Any banking company, post office saving bank or co-operative bank (notification no 28/2017, dated 5.4.2017,);
• Institution, association or body or class of institutions, associations or bodies notified by Central Government in its official gazette.

Penalty on contravention of Section 269ST (Section 271DA):

Joint Commissioner shall impose a penalty of 100% of the amount of such receipts, unless the person proves that there were good and sufficient reasons for the contravention.

D. Section 43 – Cash paid for acquiring an Asset (Inserted by the Finance Act, 2017, w.e.f. 1-4-2018)

For the purpose of determining Profits and Gains from Business or Profession, where any person incurs any expenditure for acquisition of any asset or part thereof in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account, exceeds ten thousand rupees, such expenditure shall be ignored for the purposes of determination of actual cost. 

E. Section 40A(3) and 40A(3A)

As per section 40A(3), where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, exceeds Rs 10000/-, no deduction shall be allowed in respect of such expenditure while computing Profits and Gains from Business/Profession.

Section 40A(3A) further provides (that in case an allowance is made in the assessment for any year on the basis of incurred liability, but in the subsequent year or years, assessee makes a payment exceeding Rs 10000/-in a day, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, in respect of such liability, then the payment so made shall be deemed to be the Profit of the year in which such payment is made.

Certain exceptions have been provided wrt to the above disallowance, which is not covered in this article

2. Reportable Transaction provisions (Section 285BA, Rule 114E)

With an objective to curb black money and widen tax base, apart from above initiatives, the Government took one more  initiative which was to cast an obligation on government agencies and other authorities who are a valuable and reliable source of information, to report high-value transactions.

Such specified persons were required to submit ‘Annual Information Return(AIR)’ introduced in 2003 with respect to specified financial transactions under Section 285BA.

Later, Finance Act 2014 replaced Section 285BA and renamed it as ‘Obligation to furnish Statement of Financial Transaction (SFT) or reportable account’ to widen the scope of specified persons and to introduce various other provisions.

SFT is a report of specified financial transactions by specified persons including prescribed reporting financial institution. Such specified persons who register, maintain or record such specified financial transaction [and details to be reported by financial institutions in respect of each reportable account (these are for reporting persons who are non-resident /foreign entities or persons – Not covered in this article)]are under a mandate to submit SFT and to the income tax authority or such other specified authority or agency.

Financial transaction specifically required to be reported under Section 285BA are as follows:

• Transaction of purchase, sale/ exchange of goods or property or right or interest in a property; or
• transaction for rendering any service; or
• transaction under a works contract; or
• transaction by way of an investment made or an expenditure incurred; or
• transaction for taking or accepting any loan or deposit

The ‘specified transactions’ prescribed by the Central Board of Direc Taxes under Rule 114E of the Income Tax Rules are as hereunder:

Aggregation Rule:

From the above monetary threshold for specified financial transaction, except for transaction specified in SNo 10 and 11, aggregation is required to analyze if monetary threshold is being crossed. While aggregating the amount, the following shall be noted:

• All the accounts of the same nature as specified in column (2) of the above Table maintained in respect of that person during the Financial Year shall be taken into account. Example: If Mr. X has two savings account of Rs 6 lakh each, in order to check monetary threshold of Rs 10 lakh, amount in both savings account need to be aggregated
• All the transactions of the same nature as specified in column (2) of the above Table recorded in respect of that person during the Financial Year shall be aggregated. Example: If Mr. X has purchased shares for a value of Rs 5 lakhs in January in a Financial Year and Rs 6 lakhs in March of the same Financial Year, value of both shares need to be aggregated to check monetary threshold of Rs 10 lakhs
• In a case where the account is maintained or transaction is recorded in the name of more than one person like joint account, attribute the entire value of the transaction or the aggregated value of all the transactions to all the persons. Example: In case Mr. X and Mrs. Y holds two joint savings account of Rs 3 lakhs and Rs 7 lakhs, aggregation of Rs 10 lakhs is attributed to both Mr. X and Mrs. Y separately to check for monetary threshold

Form and Due Date of Furnishing SFT:

SFT in Form 61A shall be submitted by the ‘Specified Persons’ on or before 31 May of the Financial Year, immediately following the Financial Year in which the transaction is recorded or registered.

3. Transaction on which Tax has to be collected at Source (TCS) (Section 206C)

Tax collected at source (TCS) is the tax payable by a seller which he collects from the buyer at the time of sale. Section 206C of the Income-tax act governs the goods on which the seller has to collect tax from the purchasers.

When the below-mentioned goods are utilized for the purpose of manufacturing, processing, or producing things, the taxes are not payable. If the same goods are utilized for trading purposes then tax is payable. The tax payable is collected by the seller at the point of sale.

The rate of TCS is different for goods specified under different categories :

TCS Payment and Return Filing Due Dates

Conclusion

Indian Government has taken many steps in direction of curbing Black Money. Besides demonetization, Enactment of the Benami Transactions (Prohibition) Amendment Act, 2016, Launching of ‘Operation Clean Money’ on 31st January 2017 , amending the Prevention of Money-laundering Act, 2002 through the Finance Act, 2015, Government has also been making stringent Income Tax provisions as enumerated above to restrict cash transactions and curb tax evasion.