Section 269ST of Income Tax Act: What is 269ST

Section 26ST of the Income Tax Act comes into power when a person receives a cash amount of ₹2 lacs or more. Sec 269ST states that no individual shall receive a cash amount of more than ₹2 lacs in aggregate from a single person during a day, in a single transaction, for one event or occasion-related transaction. Basically, 269ST aims to curb cash transactions up to a certain amount. 

The Government of India (GoI) introduced Section 269ST of the Income Tax Act to prevent tax fraud and curb the use of black money in the economy. 

Let us understand Sec 269ST of the Income Tax Act in detail. 

What is the 269ST Income Tax Act?

Section 269ST of the Income Tax Act applies to the recipients of cash. Any individual receiving ₹2 lacs or more in cash in a day, in a single or aggregate of multiple transactions in a day or in a transaction pertaining to a single occasion or event in a day does not comply with the 269ST norms.  

Applicability of Section 269ST on loan repayment

An individual can pay a loan amount of less than ₹2 lacs in cash to any Non-Banking Financial Company (NBFC) or Housing Finance Company (HFC). However, if this cash loan repayment amount exceeds ₹2 lacs, then it is prohibited to promote India’s digital economy. 

The cap of ₹2 lacs on cash loan repayment applies to the whole or single instalment of the loan repayment. In the case of an instalment, one instalment would be considered as one or ‘single transaction’ for complying with sec 269ST. 

Therefore, if a single loan instalment of less than ₹2 lacs, its cash payment would comply with the Section 269ST norms. The applicability of ₹2 lacs limit is not applicable on the sum total of all instalments paid for a loan. 

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

Breaking the law, i.e. violation under Section 269ST of the Income Tax Act, invites a penalty. The penalty imposed will be 100 per cent of the amount under consideration. The entire amount received in cash will have to be paid as a penalty. 

For example, if the amount received in cash is ₹5 lacs, the entire amount of ₹5 lacs will have to be paid as a penalty.

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

The scope of Section 269ST of the Income Tax Act does not apply to certain assessee types. These are as follows: 

• Government 
• Post Office Savings Bank, Cooperative Bank, or any other banking company
• Notified other persons or receipts 
• Section 269SS referred transactions (when a loan from a specific person is concerned)
• Approved persons or set of persons or receipts to which the Central Government has officially announced, approved or published

A person withdrawing any amount from their bank account in cash during a crisis or any other situation would not be considered a violation of Section 269ST. 

Sec 269ST Example 

Let us understand the scope of Section 269ST with an example. 

• Situation a) A person has sold goods worth ₹4.8 lacs through three different bills of ₹1.6 lacs each to a single entity. If the same person accepts cash in one day at different time intervals during the same day, then Sec 269ST(a) would be violated. 
• Situation b) An entity accepts an order of cake and confectionery, decorations, catering and return gifts of XYZ. The entity accepts cash payments of ₹1 lac each for each of these event orders. In this case, Section 269ST(c) would be violated. It would attract a penalty even when cash is accepted on different dates for the same event. 
• Situation c) If a clothing company sells clothes worth ₹3 lacs in a single invoice to a single person and receives a cash payment of ₹2.5 lacs in one day and another instalment of ₹50,000 in another day, then the receipt of ₹2.5 lacs would be a violation under Section 269ST.

In all three situations stated above, Section 269ST is being violated, and a penalty u/s 271DA would be applicable. 

Conclusion 

The Government of India (GoI) is making efforts to curb big-ticket cash transactions in a single day. Section 269ST is a hallmark act for restraining black money and promoting the digital economy.