Section 269ST of Income Tax Act

Section 269ST of the Income Tax Act 1961 deals with imposing restrictions on individuals and eligible entities on receiving cash amounts of Rs. 2 lakh or more in a single day. The Indian government has long discouraged cash transactions, as tracking such transactions and ensuring the funds are used for legitimate purposes is difficult. However, as it realised that there are some individuals and entities taking large amounts of cash in a single day, it introduced section 269ST in the Income Tax Act to ensure such cash transactions only happen to a threshold limit. Since cash transactions of Rs. 2 lakh and above are now restricted, it is important that you know the consequences of carrying out such a transaction. It is also a possibility that you may be exempted from such restrictions listed under section 269ST of the Income Tax Act.

Thai blog will help you understand all the provisions of section 269ST of the Income Tax Act to ensure your cash transactions are within the guidelines set by the Indian government.

What is section 269ST?

Section 269ST is a section of the Income Tax Act 1961 that restricts individuals and entities from receiving cash of Rs. 2 lakh or more in a single day from a single person or entity. Section 269ST was introduced in the year 2017, and its provisions came into effect from 1st April 2017. Under the section, cash transactions of Rs. 2 lakh or more are not allowed, and the liability for restricting such transactions falls on the receiver and not the payer. Hence, taking a sum of money of Rs. 2 lakh or more is disallowed while the payer is not held responsible under the purview of section 269ST of the Income Tax Act.

Under the provisions of section 269ST of the Income Tax Act, no individual or entity should receive,

• An aggregate sum of Rs. 2 lakh or more from an individual or entity in a single day.

• Rs. 2 lakh or more as a single transaction.

• Rs. 2 lakh or more for an occasion or one event from a single person or entity.

Also read: Income Tax Slab for FY 2024-25

Applicability of section 269ST on loan repayment

Since section 269ST restricts taking amounts of Rs. 2 lakh and higher in a single day, the provisions can stretch to loan repayments. As per section 269ST of the Income Tax Act, an individual can only repay a loan amount of Rs. 2 lakh or less in cash to any Housing Finance Company (HFC) or Non-Banking Financial Company (NBFC) in a single day. However, if the loan amount repaid to HFCs and NBFCs exceeds Rs. 2 lakh, it should not be paid in cash but using other banking and digital modes.

The Rs. 2 lakhs threshold limit on loan repayment applies to a single instalment or the whole loan repayment amount. If you are repaying an instalment, the entire instalment is considered a single transaction, and the provisions of section 269ST of the Income Tax Act apply. However, the provisions of this section do not apply to the sum total of all the loan instalments paid in multiple transactions in cash.

Also read: Section 56 of Income Tax Act

What is the penalty under the 269ST of the Income Tax Act?

Here are the details of the penalty amount under section 269ST of the Income Tax Act:

• Penalty threshold limit: Under section 269ST of the Income Tax Act, the penalty is equal to the amount received in cash that exceeds the prescribed limit. Hence, if cash receipts of Rs. 2 lakh or more are received from a single person on a single day in cash, the penalty imposed will be the same amount as the cash received in contravention of the section.

• Applicability of penalty: The penalty under section 269ST of the Income Tax Act applies on every transaction in a day of Rs. 2 lakh or more individually. For example, if you receive Rs. 3 lakh in cash from a single person on a single day, the penalty would be Rs. 3 lakh.

• Scope of penalty: The penalty under section 269ST of the Income Tax Act applies to all individuals and entities, including businesses, professionals, and other organisations, irrespective of their nature or size. It also applies to farmers taking cash of Rs. 2 lakh or more for their produce in cash in a single day.

Also read: Section 80C of Income Tax Act

What are the exclusions under the 269ST Income Tax Act?

Although the provisions of section 269ST of the Income Tax Act apply to receiving Rs. 2 lakh or more in cash from a single person in a single transaction, there are some exemptions. Here are the entities exempted from the provisions of section 269ST of the Income Tax Act:

• Government transactions: Payments received by the government, local authorities, or any entity specified by the government are exempt from the provisions of section 269ST of the Income Tax Act.

• Transactions through banking channels: Cash receipts of Rs. 2 lakh or more made through banking channels or electronic means are not subject to the restrictions of section 269ST. This includes payments received through account payee cheques, bank drafts, or electronic transfers.

• Specified payments: Section 269ST of the Income Tax Act may exclude specific types of payments or entities as notified by the Indian government or listed in any other section of the Income Tax Act.

Sec 269ST example

Here are examples of all three specific provisions under section 269ST of the Income Tax Act:

Situation 1: An aggregate sum of Rs. 2 lakh or more from an individual or entity in a single day:

Section 269ST of the Income Tax Act prohibits the receipt of a sum of Rs. 2 lakh or more in cash from a single person in a single day in aggregate. For example, if you're a car dealer and a customer buys a car worth Rs. 2.5 lakh and pays in cash; the penalty applies to you as the recipient because the total cash received from that individual exceeds the limit. Even if you try to split the payment into smaller transactions, the total amount from the same person remains the same.

On the other hand, if you receive Rs. 1.5 lakh in cash for one vehicle from one customer and Rs. 50,000 in cash for another vehicle from a different customer, you are not in violation of section 269ST. This is because the cash payments from each individual are below the specified limit of Rs. 2 lakh and come from separate people.

Situation 2: Rs. 2 lakh or more as a single transaction:

Section 269ST of the Income Tax Act prohibits receiving Rs. 2 lakh or more in a single transaction. For example, suppose you are running a construction firm and receive regular daily payments based on the completion of the part of work daily. However, even if you are taking on a large project, you can not accept cash payments on a single day of Rs. 2 lakh or more for any part of the contract, regardless of its duration. The project may be for 1 year or 5 years; the provisions of section 269ST apply to the amount you receive in a single day for a single person. In such a case, you must accept the payment of over Rs. 2 lakh through cheques, drafts, or electronic transfers between banks to comply with the section’s provisions.

Situation 3: Rs. 2 lakh or more for an occasion or one event from a single person or entity.

For example, suppose you are an event planner organising a large wedding event and accept cash payments from clients for various services. According to section 269ST of the Income Tax Act, you cannot receive funds of Rs. 2 lakh or more in cash from any single client in connection with this event, even if the payments are made in multiple instalments. For example, if a client pays Rs. 1.5 lakh for catering services and later gives an additional Rs. 1 lakh for decoration; the total cash received from that client for the event would exceed the Rs. 2 lakh limit, violating section 269ST. To comply with the provisions of section 269ST of the Income Tax Act, all payments should be processed through cheques, drafts, or electronic transfers.

Conclusion

Section 269ST of the Income Tax Act is a vital section included in the Income Tax Act 1961 that prohibits accepting cash payments of Rs. 2 lakh or more from a single person in a single day. The main aim of the section is to ensure that large transactions above Rs. 2 lakh do not happen in cash but through banking and electronic channels to ensure effective monitoring and taxation. If you are an individual or run a business, ensure that you adhere to the provisions of section 269ST of the Income Tax Act. If you fail to do so and accept payments of Rs. 2 lakh and more in a day from a single person or entity, you can be penalised equal to the entire amount you accept as cash.

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