Section 269ST of Income Tax Act, 1961.
Introduction: To reduce the circulation of cash and to curb black money government has come out with a section 269ST under Income Tax Act, 1961; which restrict the amount that an assessee can receive from another assessee. In this article we will discuss all the special cases that are required to be noted in light of applicability of said section, and what are the exemption that has been provided in this regard.
Analysis of Section 269ST of Income Tax Act, 1961:
According to section 269ST assessee is prohibited from receiving an amount of Rs. 2,00,000/- or more in cash from any person
This section will not be applicable to
- Any banking companies
- Any post office savings bank
- Any co-operative bank
- Other persons/receipts as may be notified
- Transactions referred to in section 269SS (i.e. applicable when assessee accepts loan from any person).
This created a confusion that if banking companies are receiving cash in excess of Rs. 2,00,000/- then they have been excluded what if any person has withdrawn such amount from bank. This was an important question raised by the industry as, if section 269ST is violatedi.e. person receives the amount in cash over the above specified limit of Rs. 2,00,000/-, he is liable to pay a penalty equal to the amount received in cash.But there after government came out with clarification that such withdrawal will not attract section 269ST.
Further if any person pays an installment in cash then this section will not be attracted if individual installment is not exceeding Rs. 2,00,000/- as this will be treated as completion of single transaction.
Section 269ST specifically clarifies that assessee if assessee wants to transfer amount in excess of Rs. 2,00,000/- then he shall transfer only by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed.
- Whether capital contributed by partner will attract the said section?
Yes, any capital contributed by the partner or withdrawal by partner from firm in cash in excess of Rs. 2,00,000/- during the year will attract the provision of section 269ST of Income Tax Act, 1961.
- Mr. C contributes Rs. 5,00,000/- as in cash as capital contribution in firm M/s ABC. Whether Mr. C has contravened the provision of section 269ST? If yes what will be quantum on penalty.
In the given case the provision of 269ST is contravened and the penalty levied as per section 271DA of Income Tax Act, 1961; will be equal to amount of receipt i.e. Rs. 5,00,000/-.
- Srihari Gold Loan Limited a Non-Banking Financial Institute (NBFC) has decided to provide loan to customer who will deposit gold to them. The customer will be at the option to receive the payment in cash against the loan received by him. What if customer exercises such option whether he will be levied with the penalty for contravention of section 269ST?
The section 269ST specifically prescribe if the transaction is covered under section 269SS then the provision of section 269ST will no be applicable. According to section 269SS if any person accepts loan in excess of Rs. 20,000/- in cash then irrespective of turnover of assessee or purpose for which loan is obtain the amount of such loan will be levied as penalty. Therefore, it is advisable to customer that in case amount of loan is more than Rs. 20,000/- then he shall no accept the loan in form of cash.
- Mr. Raj has sold goods worth of Rs. 40,000/- in April to Mr. Deva, sold goods worth of Rs. 90,000/- in May to Mr. Deva, sold goods worth of Rs. 1,10,000/- in June to Mr. Deva. Mr. Deva wants to make a single payment of the above transaction in cash. Whether Mr. Raj shall accept the same?
In the given case Mr. Raj shall not accept such payment as this will contravene section 269ST and Mr. Raj will be liable to penalty equivalent to the amount of receipt i.e. Rs. 2,40,000/-
What if payment is made in part?
In that case if there was a single contract and under that contract all the three invoices have been issued then again Mr. Raj will be liable to penalty. However, if all the transaction sare independent from each other and separate payment has been received than section 269ST will not violated. But in both the case Mr. Deva will not be allowed to claim such purchase as deduction in form of expenditure or depreciation if such purchase is capitalised as such expense in cash will exceed the limit specified under section 40A(3) of Income Tax Act, 1961; (i.e. of Rs. 10,000/-)
Important Notes :
- The section 269ST is applicable irrespective of whether payment is for business purpose or for personal purpose. Further, is applicable to every person irrespective of turnover or total income of assessee.