Section 269ST of the Income Tax Act, 1961, was introduced to prevent the practice of large cash transactions, curb money laundering, tax evasion, and promote transparency in financial dealings. The provision specifically addresses the receipt of cash exceeding certain limits for a single transaction and aims to ensure that high-value transactions are routed through legitimate banking channels.
This section restricts any person, business, or organization from receiving cash payments exceeding ₹2 lakh for a single transaction or for a series of linked transactions. As part of the government’s broader initiative to promote a digital and formal economy, Section 269ST reduces the reliance on cash, ensuring that transactions are conducted through authorized financial channels.
Key Provisions and Clauses of Section 269ST of Income Tax Act
Prohibition on Receipt of Cash Payments
Clause 1 of Section 269ST prohibits any person, business, or entity from receiving a cash payment exceeding ₹2 lakh for a single transaction or in a series of connected transactions. This applies to all individuals, Hindu Undivided Families (HUFs), firms, companies, and other entities involved in any form of transaction, including sales, purchases, and services.
Threshold Limit
The threshold for receiving cash is set at ₹2 lakh, marking a significant reduction from previous thresholds for similar transactions under other provisions of the Income Tax Act. The intent is to discourage high-value cash transactions that may facilitate unaccounted money flow.
Exception for Specific Transactions
The provisions of Section 269ST do not apply to:
- Payments made for agricultural purposes.
- Payments received by government agencies, financial institutions, and recognized sources.
- Payments made to individuals or entities on behalf of the government under specified schemes.
Penalties for Non-Compliance
A penalty equal to the amount received in cash exceeding ₹2 lakh will be imposed under Section 271DA if a person or business violates the cash receipt provisions of Section 269ST. The penalty is designed to deter cash-based transactions above the prescribed limit, encouraging individuals and businesses to adopt formal financial practices.
Comparing Section 269ST and Section 269SS
Both Section 269SS and Section 269ST aim to curb large cash transactions but address different types of financial dealings.
Aspect | Section 269SS | Section 269ST |
---|---|---|
Purpose | To prevent the acceptance of loans or deposits in cash above ₹20,000 to curb tax evasion. | To prevent receipt of cash payments exceeding ₹2 lakh in a single transaction or series of linked transactions. |
Threshold Limit | ₹20,000 for loans or deposits received in cash. | ₹2 lakh for cash receipts in transactions (sales, purchases, services). |
Nature of Transactions | Deals with loans and deposits only. | Applies to all types of transactions, including sales, purchases, and services. |
Penalty for Violation | Penalty under Section 271D, equal to the amount of loan or deposit received in cash. | Penalty under Section 271DA, equal to the amount of cash received in violation of the limit. |
Exemptions | Agricultural loans, loans from financial institutions, loans between close relatives. | Agricultural loans, payments from government institutions, certain government-related transactions. |
Mode of Payment | Prohibits cash transactions for loans or deposits exceeding ₹20,000; must be through banking channels or prescribed methods. | Prohibits cash transactions exceeding ₹2 lakh in any type of transaction; payments must be through cheques, drafts, or electronic modes. |
Case Laws Under Section 269ST
- CIT v. Smt. Shanta Suresh (2020)
Issue: The taxpayer received cash payments exceeding ₹2 lakh, violating Section 269ST.
Outcome: The Court upheld the penalty under Section 271DA, reinforcing Section 269ST’s limits on cash receipts, even in cases where the transactions were in good faith. - M/s. M. K. Enterprises v. ITO (2018)
Issue: Large cash payments for goods sold in violation of Section 269ST.
Outcome: The Court imposed a penalty under Section 271DA, emphasizing that businesses must comply with cash transaction limits. - Dinesh Kumar Agarwal v. ACIT (2021)
Issue: The taxpayer received ₹5 lakh in cash for a single transaction, violating the ₹2 lakh threshold.
Outcome: The Court imposed a penalty under Section 271DA, highlighting the importance of adhering to the cash receipt limit for transparency in financial dealings.
Conclusion
Section 269ST plays a vital role in minimizing cash-based transactions and promoting transparency in financial dealings. The provision is part of the government’s larger push towards a digital economy, reducing reliance on cash to curtail tax evasion and black money. The penalties for non-compliance, which are equivalent to the amount of cash received in violation, ensure that businesses and individuals adhere to the set limits.
While Section 269SS focuses on cash transactions for loans and deposits, Section 269ST addresses cash receipts for any kind of transaction, with a stricter ₹2 lakh limit. Both sections are essential tools in the government’s ongoing efforts to formalize the economy and ensure that financial transactions are conducted through regulated channels.
Adherence to these provisions is critical for businesses and individuals to avoid heavy penalties and maintain compliance with tax laws, promoting a more transparent and accountable financial system.
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