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.

What does Section 269ST say?

Section 269ST

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.

Section 269ST & Rs 2 Lakh Cash Transaction Limit – Examples

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

  • Based on my interpretation of Section 269ST, payment modes like bearer cheque and self-cheque will also be considered on par with Cash based transactions only.
  • It has been clearly stated that penalty (if any) is chargeable to an individual who violates section 269ST, even if you do not have PAN and/or is not a tax assessee.
  • The restriction of receipt of money in Cash of Rs 2 Lakh or above in cash is applicable irrespective of whether it is for  personal / business purpose, capital or revenue in nature, tax-free or taxable income.
  • Kindly note that the payer of money is not liable to pay any penalty, it is the receiver of cash who has to bear the penalty u/s 271DA .
  • Donations in cash exceeding Rs 2,000 are not permitted (Donations can be claimed u/s 80G)
  • Premiums on Health insurance policies paid in cash can not be claimed u/s 80D
  • Loans or Deposits can not be repaid in cash in excess of Rs 20,000 or more
  • Payment of above Rs 10,000 per person, can not be made for any business payment towards any expenses (or) purchase of capital asset.
  • One should not accept a loan or deposit or sale consideration of immovable assets in cash in excess of Rs. 20,000.

 Restriction on Capital Expenditure for Business in Cash above Rs. 10000/- [Section 32 of the Income Tax Act, 1961:

  • Where an assessee incurs any expenditure for acquisition of a depreciable asset in respect of which a payment (or aggregate of payment made to a person in a day), otherwise than by an account payees cheque/ draft or use of electronic clearing system through a bank account, exceeds Rs. 10000/-, such a payment shall not be eligible for normal/ additional depreciation.

Reduction in the limit of Cash Payment to Rs. 10000/- in a Day [Section 40A(3) & 40A(3A) of the Income Tax Act, 1961:

  • The monetary limit on revenue expenditure in cash has been reduced from Rs. 20,000 to Rs.10,000(there is no change in the monetary limit pertaining to cash payment upto Rs. 35000/- to Transport Contractors). Few exceptions are also provided in Rule 6DD of the Income Tax Rules. Consequently, any expenditure in respect of which payment (or aggregate of payment made to a person in a day), otherwise than by an account payee cheque/ draft/ use of electronic clearing system through a bank account, exceeds Rs. 10000/-, no deduction shall be allowed in respect of such payment under section 30 to 37 of Income Tax Act, 1961.

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23 responses to “Rs 2 Lakh Cash Transaction Limit w.e.f 01-Apr-2017 Details & Examples”

  1. vss says:

    If a wholesales business issued many invoices to retailers each less than 2 lakhs. in this connection receives cash 10000/- per day from his customer on different dates.. then also does the penalty arises?
    example: total invoices 50, amount rs 950000, cash receipts 10000. * 95 days.

  2. Rajesh says:

    also need this answer… If we raised 2 invoice to a person of RS 170000/- both at different dates , can we receive cash against these invoices.?

  3. CA Mahendra says:

    dear sir, If amount exceeding 200000/- of hospital bill and different invoice are prepared on same decease then penalty will charge to hospital to accept cash from same person on different date.

    • Goldi kesharwani says:

      Sir If we raised 2 invoice to single person of RS 170000/- both at different dates , can we receive total amount in cash against these invoices in different dates?

  4. Ankit says:

    If a business owner sales his goods via 2 valid invoices, which are less than rs.2lakh per invoice .. and receives cash from his customer on different dates.. then also does the penalty arises?

    • Ankit says:

      I correct my question.. if 2 invoices, both less than rs.2lakh and are raised on different dates are paid in cash by customer on different dates.. amount is less than rs.2lakh in bith transactions.. does the penalty still applicable??

      • Goldi kesharwani says:

        I also need this answer… If we raised 2 invoice to a person of RS 170000/- both at different dates , can we receive cash against these invoices.?

      • VIRENDRA BARWAR says:

        If this transaction is a single transaction & issued multiple invoices on various dates and total amount is more than 2 lac rupees, then penalty should be levied otherwise not.

  5. sanjeev says:

    What will be the position in case where total rent of premises for the year is Rs. 15 lakh and amt. recds. in cash 1.25 per month.
    is penalty u/s. 269 ST applicable.

  6. Rajasekhar.AV says:

    Donation received for a specific purpose more than Rs2 lake by a Religious institute by a single person &
    Less than 2 lakh from different persons say One Lakh aggregating to Rs10 Crowe Can u please clarify

  7. shine says:

    Cash payment restrictions doesn’t apply to payment or receipt of loan above Rs. 2 lakhs as per CBDT’s circular issued later. Requesting the author to clarify the same.

  8. Arvind RShah says:

    if a person receives in cash for 2 lkhs or more he will be liable to penalty of 10% of the receipt, If the said amount is a business expenditure same will be disallowed as expenditure. so the tax will be paid by payer and penalty will be paid by receiver ,am i right.

  9. R K DHANDIA & CO says:

    What about if a farmer receive sale consideration of his crop exceeding Rs 2 lakh in single day i.e. one lot of crop

    • ANKUR1709 says:

      Any receipt from sale of agricultural produce by any person being an individual or Hindu Undivided family in whose hands such receipts constitutes agricultural income and [ As mentioned in Notes to Clause 83 of Finance Bill 2017 . But this transaction is not appearing in the Section 269ST.
      I Hope now your query is resolved .

  10. Peeush says:

    Whether penalty u/s 269ST will be imposed in case of receipt of school fees wherein quarterly fees is less than Rs, 2 Lakhs, however, total fees is more than Rs. 2 Lakhs in a year.

    • ANKUR1709 says:

      According to my understanding penalty u/s 269ST will not be imposed in case of receipt of school fees wherein quarterly fees is less than Rs, 2 Lakhs, however, total fees is more than Rs. 2 Lakhs in a year.Because a Person received a receipt of school fees of each quater

  11. VINOD KUMAR GUPTA says:

    Thanks to author for drafting such a informative article.

  12. R Ponnappan says:

    The section speaks of receipt from a person. Hence in my view on the occasion of a marraiage if gifts are received from more than one person and the aggregate of the gifts exceed Rs. 2 lakhs the section is not attracted

  13. ANKIT GOEL says:

    Your interpretation in point C – Single event / occasion is not correct to levy penalty on gift received aggregating Rs. 10 lacs even less than 2 lacs from each relative.

    Reply: while go through the section it is mentioned that –

    In respect of transactions relating to one event or occasion from A PERSON.

    “A PERSON” clarifies that penalty shall not be levied is less than 2 lacs from A PERSON.

    • Rajasekhar.AV says:

      Can a Religious Institute receive donations say Rs 20000/-above from different devotees aggregating to Rs Ine Crore for a specific purpose/ without specific purpose

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