CA Pratik Anand

In the final draft of the finance bill’2017, the government is proposing to ban all transactions in cash above Rs. 2 lacs from 01.04.2017.

If and when the proposed amendment to the finance bill’2017 is passed by the parliament then any person who enters into a transaction above Rs. 2 lacs in cash, will be liable to a penalty of an amount equivalent to the amount of transaction.

Proposed New Section 269ST reads as under:

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: 

Provided that the provisions of this section shall not apply to—

(i) any receipt by—

(a) Government;

(b) any banking company, post office savings bank or co-operative bank;

(ii) transactions of the nature referred to in section 269SS;

(iii) such other persons or class of persons or receipts, which the Central Government may, by notification in the Official Gazette, specify.

Therefore, in light of the above the government has proposed to ban all types of transactions in cash above Rs. 2 lacs.

The important points to note in respect of the above are as follows:

1) The restriction is on receipt of cash and not on payment of cash above Rs. 2 lacs:

Any person who receives above Rs. 2 lacs in cash will be liable to penalty equivalent to the amount received.

There is no restriction on payment of cash. However, it is to be noted that there is an existing provision for restricting cash payments above Rs. 20,000/- for business purposes. This provision has also been amended and now cash payments above Rs. 10,000/- shall not be allowed as expense in the income tax return.

2) Receiving cash above Rs. 2 lacs in a day from a person is not allowed:

Receipt of more than Rs. 2 lacs from a single person in a day is not allowed even though the amount has been paid in multiple transactions during the day which are below Rs. 2 lacs.

3) Receipt exceeding Rs. 2 lacs for a single transaction is not allowed:

For example, if a transaction is for Rs. 7 lacs, then a single payment for such transaction cannot exceed Rs. 2 lacs.

4) Receipt above Rs. 2 lacs in respect of a single event or an occasion from a person: 

The most common example of occasion is marriage, therefore a person cannot receive more than Rs. 2 lacs in cash for such occasion from a person.

Also important to note that this limit on an occasion is not limited to per day basis therefore receipts even on various days in respect of a single event or occasion aggregating above Rs. 2 lacs is prohibited.

If the receipts are from different persons, the same would not be covered by the third circumstance, even if the same relates to a single event or occasion.

5) What can be the case which is not covered under all the three circumstances?

Receipts from same person are permitted if the same is below the specified limit and on different days. If the same is not in relation to a single transaction and/or same event/occasion.

6) Nature of receipt does not matter

Another important point to be noted in respect of the proposed new section is that the nature of receipt does not matter.

Therefore, even if a person receives a sum which is not chargeable to tax still he would be hit by the provisions of this section and would be liable to penalty.

Receipts can be anything such as proceeds of sales of goods, income of whatsoever nature – taxable or not, gifts, capital receipts, loans, advances, government grants, subsidies, encashment of bonds/securities, encashment of instruments like National Savings Certificates, proceeds of Life Insurance Policies, scholarships, sale of shares, transactions between related parties and so on.

The nature of receipt is very wide and it would be interesting to see if the government exempts any circumstances in the future.

7) Who are the persons and what are the transactions exempted from section 269ST?

The proposed section 269ST would not be applicable in following cases:

“(i) any receipt by—

(a) Government;

(b) any banking company, post office savings bank or co-operative bank;

(ii) transactions of the nature referred to in section 269SS;

(iii) such other persons or class of persons or receipts, which the Central Government may, by notification in the Official Gazette, specify”.

Therefore, if Govt. or a banking company receives any sum in contravention of this section, they would not be liable to any penalty.

Another interesting point to note is that receipt of money from a banking company is not exempted. Therefore even cash withdrawal in contravention of the above limits can be hit by the provisions of the proposed section 269ST.

8) What are the other points that should be kept in mind in respect of Section 269ST?

Some of the other relevant points to be considered are:

It is irrelevantthat the person receiving the cash has a PAN or not and whether such person is assessed to income tax or not. Source of income of the recipient is irrelevant and nature of receipt of such person is also irrelevant.This section would also apply to transactions between related persons.The provisions would also apply to transactions between persons who are otherwise exempt from tax.Restriction would apply on all persons/entities except those which are specifically exempted like banks etc. Therefore, section 269ST will be applicable on receipt of money by all persons such as individuals, HUFs, firms, companies, trusts, charitable Institutions, AOPs/ BOIs etc.

9) What are the modes of receipt which are not allowed?

Some of the modes of receipt which are not allowed are cash, bearer cheque, crossed cheque, self cheque, adjustment or transfer entry in the books of account.

However, going by the literal interpretation of the section any receipt of money other than by account payee cheque or account payee draft is not allowed. Whether this would cover transfers by e-payment wallets like Paytm etc which are very common these days will have to be clarified soon.

10. Section is applicable to receipts irrespective of the fact that they are with or without consideration.

Section 269ST is applicable to receipts irrespective of the fact that they are with or without consideration.

In case of receipts without consideration, there can be dual impact of penalty under this section and under section 56 of the Income Tax Act’ 1961 in some specific cases.

11) What is the penalty for violating section 269ST?

The Govt. proposes to introduce a new section prescribing penalty for violating the provisions of section 269ST. As per this section:

(1) 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.

(2) The penalty will be not be levied if such person proves that there were good and sufficient reasons for the contravention.

What are good and sufficient reasons will be decided on a case to case basis by the joint commissioner as the joint commissioner has the power to levy such penalty.

(The author is a CA in practice at Delhi and can be contacted at: E-mail: contact@capratikanand.com, Mobile: +91-9953199493)