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written by | April 27, 2022

What is Section 269ST of the Income Tax Act & Penalty for Violation of 269ST?

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The movement of black money throughout the marketplace is among the most severe risks our economy confronts. Many taxpayers conduct money trades to avoid paying their taxes and assuming their economic responsibilities. The government loses a lot of money because of the enormous cash payments. Cash transactions are also difficult to detect, enabling or encouraging the movement of black money.

The Indian government included Section 269ST of the Income Tax Act to combat such unlawful cash payments. The law went into force in April 2017 and has aided in reducing extensive black money circulation in the marketplace. Here's whatever you need to understand regarding Section 269ST of the Income Tax Act.

Did you know?

According to Arthakranta, a research organisation, India's black money accounts for 2-3 times its GDP. India's GDP is ₹210 lakh crores, and as a result, the total amount of black money is ₹600 crores.

Also Read: All You Need To Know About Cash Deposit Slip

Conditions Before the Enactment of Section 269ST of the Income Tax Act

Before introducing Section 269ST, the requirements of Sections 269SS and 269T were applied. The stipulations in this section made it illegal to receive or repay the loans or make cash payments above ₹19,999. The government put restrictions in place to reduce the usage of black money. The result, unfortunately, was not as anticipated. Sections 269SS and 269T both included provisions for punishment, and there were also consequences if an individual broke the rules.

If it seems to the law that a person operated with good conscience, he is not accountable. In the following situations, no penalty would've been imposed:

  • If the transaction appears to be legitimate.

  • If it is documented in the books of accounts of the people concerned.

  • There is no tax avoidance if the trade is made in good faith.

  • If the names and confirmations of the persons involved in the trade are on file.

What Exactly is Section 269ST of the Income Tax Act?

Articles 269SS and 269T acted as methods to prevent the use of black money inside the Indian market by limiting cash payments before establishing Section 269ST. Nevertheless, in the big scheme of things, initiatives were not as beneficial as the administration had intended. As a result, the government implemented Section 269ST, which limits any individual's cash transactions to less than ₹2 lakhs on a particular day. As a result, no single person or individual can receive a cash payment greater than or equivalent to ₹2 lakhs in a given day.

No one can pay more than ₹2 lakhs in a cash deal, and people cannot divide the money into minor instalments, and the affected person is unable to receive such amounts. Furthermore, funds collected from numerous sources for a single event, for example, in part or tiny portions, cannot surpass ₹2 lakhs in a given day. An individual can use cheques, draughts or an automated clearing method through a bank account to pay the amount beyond the cash restriction.

An Analysis of the Section 269ST

A

The first rule stipulates that an individual cannot accept more than ₹2 lakhs in a single day. As a result, the following conditions must be met for this clause to be applicable:

  • There is a single payer and a single recipient.
  • The amount of cash received must be at least ₹2 lakhs.
  • Payment must be made on the same day.

For instance 

There is no breach of this clause if Tom gets a single payment of ₹1 lakh from John in a single day because the amount is well within the critical threshold.

(ii) There is a breach if Tom receives a direct payment of ₹2 lakhs from John because the amount crosses the threshold limit.

(iii) There is a breach if Tom receives ₹2 lakhs from John Y in multiple transactions in a single day.

(iv) There is no infringement if Tom collects ₹1 lakh from John and ₹1 lakh from James on the same day

B

The restrictions are placed regarding each transaction by clause (b), regardless of whether the money is collected on a given day or over multiple days. This restriction will operate in tandem with a single company's daily cumulative receipt limitation. As per this, an organisation can only accept a sum less than ₹2 lakhs in a single cash deal. As a result, the second clause requires a single payer and a single receiver.

There should be a transaction associated with the payment. The total cash collected in a single day or over multiple days is at least ₹2 lakhs.

For instance 

If Tom trades  ₹3 lakhs worth of products to John via two distinct payments of ₹1.50 lakhs apiece.

In this situation, he can collect ₹3 lakhs in cash or other forms from Mr. B in 2 or more days while staying within the per-day per-entity limitation because the per-transaction and per-day-per-entity limits are not exceeded.

Note:

When a portion of a sum is obtained via banks and the remainder is obtained via cash, the entire limitation of fewer than ₹2 lakhs will be applied only to the money received via cash, and the money collected through acceptable ways will be ignored.

C

The third clause of Section 269ST restricts all transactions relating to a particular event. This restriction will be applied in conjunction with the daily limit on cumulative receipts from a singular body and the daily limit on single transactions.

As per this, an organisation can only collect a total of ₹2 lakhs for all transactions relating to a particular type of event.

The person can make the payment in multiple exchanges over many days, but they must be for a single event or occasion.

The legal definitions of "event" and "occasion" are ambiguous and can lead to many misunderstandings. The purpose of the rules is to prevent people from splitting their money into multiple tiers and avoiding the restrictions. As a result, the expanded scope of the section's offence is anti-avoidance, rather than extending the scope of the rule to lower-value transactions that would otherwise be exempt from the section's reach.

For instance

If an individual has performed a range of services for a user's wedding, such as renting a lawn for the celebration, flower services and decoration services, and has produced three independent bills totalling ₹2 lakhs for each activity (total ₹6 lakhs). Regarding all three bills/transactions, he can accept amounts less than ₹2 lakhs in cash or other forms from his consumer. Even if the limitation per activity and also the limitation per day per entity are not exceeded, because all the transactions are tied to the same event of a wedding, the overall restriction that is less than ₹2 lakhs will be a combined limit for all the purchases.

Deals Between the Organisation and Its Members Under Section 269ST

If the cash payments are for the members' entrance or withdrawal of money from a partnership firm, and the sum is ₹2 lakhs or even more, will they be included in the requirements of section 269ST? Various people have different perspectives on such interactions. According to one line of view, the provisions of section 269ST apply because the partnership firm and members are separate individuals. According to another line of sight, partners and firms are the same because a partnership firm isn't a legal entity made up of members.

Also Read: All You Need To Know About Section 143(1) of Income Tax Act

Penalties in the event of a Violation of Section 269ST

Any person who breaches the rules of section 269ST by accepting in money an amount of ₹2 lakhs or more than ₹2 lakhs would be responsible for paying a penalty of a certain value. Nevertheless, if the person has valid grounds for the violation and the court agrees with the grounds, the person will not face any penalties. The primary objective of enacting section 269ST is to make preparations for the digital economy while simultaneously attempting to combat black money laundering effectively.

The Income Tax Act was amended to include a new section 271DA. This section says that anyone who accepts a payment that violates the provisions of section 269ST is obliged to pay the penalty equivalent to the amount received.

The joint or additional commissioner of income tax will impose the fine outlined in section 271DA of the income tax act. If the person refuses to show that he has a good and sufficient reason, he will face punishment.

Conclusion

The methods for calculating the limitation described above are only applicable in a few common situations.

There may be various situations in which these constraints must be imposed based on the circumstances. Taxpayers must prevent any loopholes and make every effort to comply with regulations to achieve the government's goal of making the market cashless.

The restrictions of section 269ST may affect many people; thus, everyone who receives cash should use extreme caution to avoid violating section 269ST; otherwise, he may face penalties.

Limiting cash payments is an effective strategy for India to get a two-fold advantage. This has provided a chance to combat black money while assisting India's development as a new economy based on the internet. Section 269ST establishes a method of preventing the culprit from engaging in black monetary transactions. In addition, the violation of the same is difficult to justify.

It is harder to establish good and adequate cause than to demonstrate reasonable grounds. Limiting cash payments may provide India with a way out of the horror of black money that has gripped the nation.
Follow Khatabook for the latest updates, news blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and accounting.

FAQs

Q: What is the penalty for violating Section 269ST of the Income Tax Act?

Ans:

If Section 269ST is breached, the government has additionally enacted penalties. If an individual receives a quantity of cash that exceeds the ₹2 lakhs, he must face penalties equal to the amount collected in cash.

Q: What effect does Section 269ST have on NBFC (Non-Banking Financial Company)?

Ans:

NBFCs don't have to add all-cash instalments collected against a single loan agreement to see whether it surpasses ₹2 lakhs for the purposes of section 269ST. Each payment will be considered a separate activity.

Q: Why was Section 269ST of the Income Tax Act enacted?

Ans:

Section 269ST of the Income Tax Act was enacted to stop the flow of black money in the Indian market.

Q: What is Section 269ST of the Income Tax Act?

Ans:

Section 269ST states that no single person or individual can receive a cash payment greater than or equivalent to ₹2 lakhs in a given day.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.