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Update on Section 269ST of Income Tax Act

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A loan sum can be paid back by an individual to any HFC (housing finance company) or NBFC (non-banking finance company) in cash, provided each loan instalment is lesser than Rs. 2 lakh. The government, in the last budget, initiated section 269ST. Under the section, more than Rs. 2 lakh cash transactions are forbidden from promoting the digital economy. The government introduced section 269ST to curb the economy’s black money and tax fraud.

Section 269ST prohibits any person from receiving an amount of Rs. 2 lakh and above in cash:

  • On the whole, from an individual in a day, or
  • In a single transaction, or
  • In respect of transactions relating to one affair or occasion from an individual

After initiating this section, numerous representations were sent by NBFCs and HFCs as to regardless the limit of Rs. 2 lakh must apply to one instalment of loan reimbursement or for the whole amount of such rebate. In this condition, the income tax department elucidated that if you are paying back the loan to NBFCs or HFCs, the one instalment of loan reimbursement shall constitute a single transaction, and so if the single loan instalment sum is lesser than Rs. 2 lakh, it can be reimbursed in cash. However, all the instalments paid for a loan must not be accumulated to determine the applicability of the Rs. 2 lakh limit.

Exclusions from the scope of section 269ST
This section will not apply to:

  • Government
  • Any banking company
  • Post office savings bank
  • Co-operative bank
  • Other persons/ receipts may be notified
  • Transactions referred to in section 269SS will be excluded from the scope of the new section 269ST

Examples

  • If one sells commodities worth Rs 4, 50,000 through three divergent bills of Rs. 1, 50,000 each to one person and accepts cash in one single day at different times, then section 269ST (a) will get violated.
  • If one sells commodities worth Rs. 5, 00,000 through a single bill to another individual and acquires cash of Rs. 2, 50,000 on day one and another Rs. 2, 50,000 on day 2, then section 269ST (b) will get contravened.
  • X obtains an order of catering, decoration and tent for the wedding event of Y. He acquires cash of Rs. 1, 00,000 for catering Rs. 1, 50,000 for embellishment and Rs. 1, 50,000 for tent work, and then section 269ST(c) will get contravened even if cash is accepted on distinct dates. This is because all the cash transactions are concerning with the same event- the wedding of Y.

In all three cases, section 269ST gets contravened, and penalty u/s 271DA is applicable.

Relaxation on cash payment to hospitals
Hospitals/medical facilities providing COVID19 treatment to sufferers can now acquire cash payments higher than Rs. 2 lakh. A limit in section 269ST of IT Act eased, from 01.04.2021 to 31.05.2021. PAN and AADHAAR are required. Government held that states hospitals, dispensaries, nursing homes, covid care centres or similar other medical facilities giving covid treatment to sufferers for the purpose of section 269ST of the Income Tax Act, 1961 for payment received in cash during 01.04.2021 to 31.05.2021. Granting further relief because of the severe covid pandemic, provisions of section 269ST of Income-tax Act, 1961 were relaxed by the central government. Allowed hospitals/medical facilities, providing covid treatment to patients to receive cash payments of Rs. 2 lakh or more.

Introduction of penal provisions
The government has also initiated penalty provisions of section 269ST is violated. For example, if a person receives the amount in cash over the above-specified limit of Rs. 2 lakh, he is liable to pay the penalty equal to the amount received in cash. So, it is essential to ensure that you do not get cash of Rs. 2 lakh and above in a single deal, aggregate from an individual in a day, or in respect to transactions concerning to one event or occasion from an individual.

At AJSH, we assist our clients with various income tax compliances, including income tax assessments, ITR filings, tax advisory and other related services by providing them adequate support and guidance from our end. If you have any questions or wish to know more about Section 269ST, kindly contact us.

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