In Budget 2017-18, a ban on cash transaction of more than Rs 3 lakh has been proposed. The same has been mentioned in the Finance Bill 2017. But, the Govt of India has made amendment in Finance bill and has reduced the Cash transaction limit to Rs 2 Lakh.
This amendment has been passed through Finance Act, 2017 and notified on 31-March-2017. Complete details on Rs 2 Lakh Cash Transaction limit have been provided in a new section referred to as ‘Section 269ST‘.
As per Section 269ST, any person who enters into a transaction of Rs 2 Lakh or above in cash, will be liable to a penalty of an amount equivalent to the amount of transaction.
For example : If you buy an expensive watch for cash worth Rs 7 Lakh, it is the shopkeeper who will have to pay the tax (penalty) of Rs 7 Lakh. So, here the tax rate is 100%.
Though this new section on Cash Transaction limit sounds simple, we need to go through it in details, as I believe that this may have quite an impact on our daily financial lives.
With effective from 1st April, 2017, no person shall receive an amount of Rs 2 Lakh 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.
The new Cash transaction limit is not applicable, if a person receives the amount through an Account Payee Cheque (or) an Account Payee Bank Draft (or) through use of electronic clearing system through a bank account. (Looks like, any receipts done through e-Wallets like Paytm, credit cards etc., may also be hit by this new amendment, need more clarity though.)
Kindly note that Penalty u/s 271DA will be imposed on a person who receives a sum of Rs 2 Lakh and above in cash. The extent of penalty will be a sum equal to the amount of such receipt. The said penalty shall however not be levied if the person proves that there were good and sufficient reasons for such contravention.
Let us understand the above three points with examples;
A. Single Person: Cash Receipt of Rs 2 lakh or more, from a single person in a dayis not allowed even if the amount has been paid through multiple transactions during the day which are below Rs 2 lakh.
For example : Mr Modi buys a gold chain worth Rs 2 Lakh and pays the amount by cash to Mr Rahul on a single day in 4 equal installments of Rs 50,000 each. As Mr Rahul accepted cash worth Rs 2 Lakh from a single person and in a single day, section 269ST is applicable in this case. Mr Rahul has to pay a penalty of Rs 2 Lakh.
B. Single Transaction: Cash receipts of Rs 2 Lakh or more which are related to a single transaction are prohibited.
For example : Mr Kejriwal goes through a medical surgery and the hospital charges him a bill of Rs 4 Lakh. Kejriwal clears the bill in 4 installments of Rs 1 Lakh each on four different dates. Here, the cash receipts got by hospital are less than Rs 2 Lakh and have been received on different dates.
Whether this transaction violates section 269ST? – Yes. Hospital has to pay the penalty. Because, they received the payments with respect to single bill / transaction. So, splitting of payments over several days is prohibited.
C. Single Event / Occasion: Cash transactions or cash receipts related to a single event or occasion, can not be more than Rs 2 Lakh.
For example : Nagachaitanya gets married to Samantha. On their wedding occasion, their relatives gifted Cash amount worth Rs 10 Lakh on different dates. Even if we assume that each person has gifted cash worth less than Rs 2 Lakh, are these receipts come under the purview of Section 269ST? Is penalty applicable?
Yes, penalty can be levied. Here, marriage is a ‘single occasion’ and cash gifts worth Rs 2 Lakh or more can not be received from relatives and other persons.
Other Important Points
Restriction on Capital Expenditure for Business in Cash above Rs. 10000/- [Section 32 of the Income Tax Act, 1961:
Reduction in the limit of Cash Payment to Rs. 10000/- in a Day [Section 40A(3) & 40A(3A) of the Income Tax Act, 1961: