Section 269ST of Income Tax Act: A Guide on the Repayment of Loan Instalments in Cash
Updated: 3 days ago
Digitalisation has been a game-changer for Indians, enabling cashless transactions for almost everything. However, the progress has to be managed with some rules and regulations. The Union Government suggested a new Section 269ST in the 2017 Financial Bill due to the recent rise of cashless transactions. It is significantly transforming the Indian economy, impacting both the upper class and the daily lives of common people. The reason is the imposition of constraints on receiving excess funds from an individual rather than a specific amount. Furthermore, the consequences for breaking this section's rules are harsh. We shall cover everything about Section 269ST in this blog post.
Table of Content
What is Section 269ST of the Income Tax Act?
The government implemented Section 269ST to deal with tax fraud and black money in the economy. Receiving monetary payments of Rs. 2 lakh or more is prohibited as per Section 269ST. Here are a few details of the regulations laid down under this section.
a) The total amount to be received by a person in a day.
This primarily states that even if two separate bills are issued by the same person, they cannot give someone Rs. 2 lakh in cash. Let's say you are a jeweller and someone pays you Rs. 3 lakh in cash for some jewellery. As the recipient, you will be held accountable. The entity remains the same even if you try to split the bill. However, it is acceptable if the total amount obtained from two distinct sources falls below the designated limit. Assume you get Rs. 1.75 lakh for a piece of jewellery from one individual and Rs. 50,000 for another item from another. In that case, there is no sectional violation.
b) Regarding a specific transaction
You may be aware that contractors are paid only once a certain proportion of their task is finished. The majority of their transactions are based on cash receipts, and they usually require money for labour, supplies, and daily necessities. Even if the contract is for one year or five years, they are now forbidden to receive more than Rs. 2 lakh in cash in a single contract. All transactions must be completed via bank-to-bank electronic transfer, cheque, or draft.
c) Regarding transactions from a person about an event or occasion
If you are Indian, you know the role money plays in weddings. Such events and occasions will also fall under these categories. Since it isn't stated explicitly, it applies everywhere. As a result, cash gifts given on any occasion that included exempt income may also fall under this clause. After the introduction of this clause, NBFCs and HFCs sent many kinds of statements regarding whether the Rs. 2 lakh cap could be applied to a single loan repayment instalment or to the entire repayment amount. According to the income tax authority, if you repay a loan to an NBFC or an HFC, the single loan payback instalment will be considered a single transaction. Therefore, cash can be utilised to pay off a single loan instalment if the total amount is less than Rs. 2 lakh. To determine whether the Rs. 2 lakh limits apply, all loan installments paid cannot be combined.
Examples of Section 269ST
Section 269ST(a) is violated if someone sells products worth Rs 4,50,000 to one person on three different bills of Rs 150,000 each and takes cash in one day at various times.
Section 269ST(b) is violated if an individual sells items worth Rs 500,000 to someone else on a single bill and collects Rs 2,500 on day one and Rs 2,500 on day two.
A agrees to provide food, décor, and a tent for B's wedding. Section 269ST(c) will be breached if he takes Rs. 1,00,000 for catering, Rs. 1,50,000 for décor, and Rs. 1,50,000 for tent work. This is valid even if the money is received on different days. All financial transactions were associated with the same event—B's marriage.
Section 269ST is broken in each of the three situations, and a penalty under Section 271DA is imposed.
Exclusions From Section 269ST
This section will not be applicable to:
Any banking institution or government
Cooperative bank
Other individuals or receipts that may be notified
The new section 269ST will not apply to transactions listed in section 269SS, which are drawn upon when we decide to take a loan from someone.
Penal Provisions
Further, the government has added measures for penalties for violations of Section 269ST. An individual has to pay a penalty equivalent to the amount of cash received if they receive excess than the Rs. 2 lakh limit specified above. Therefore, it is essential to ensure that you don't receive more than Rs. 2 lakh in cash in one transaction, in a single day, or in connection with transactions related to a single event or occasion. Check here for further information. (as per the CBDT circular no. 22/2017 dated July 3, 2017)
Withdrawal of Cash from Bank
As an implication of the penalty imposed for the violation of Section 269ST, people may worry about what might happen if they want to take money out of the bank when they become recipients. The tax department stated in a recent press statement that the average person is capable of withdrawing any amount from a bank. Section 269ST will not be used in this instance.
Conclusion
To put it briefly, the government is attempting to limit large cash transactions that are carried out by any individual, business, or firm. The government can exercise more control over the black money market if there are fewer cash transactions. Even they have a limited way to escape this area. We hope this move will help India progress and bring forth significant changes.
FAQ
Q1. What is the difference between 269SS and 269ST?
The Act's Section 269ST applies to all receipts, capital or revenue, taxable or tax-free, except for the transactions specified in Section 269SS and other receipts exempted as declared by the Central Government.
Q2. What is the limit for cash receipts?
The Income Tax Act's Section 269ST prohibits a person from receiving INR 2 lakh or more in cash from someone else on a single day, either for a single transaction or for multiple interactions connected to a single event or occasion.
Q3. Is it illegal to make cash payments?
Cash wage payments are allowed by law and may be viable for certain companies. However, some companies may deliberately make cash transactions to avoid paying taxes and satisfying their obligations to their workers. Check to ensure you are paid at least the correct award wages according to the regulations if paid in cash for your labour.
Q4. What if I want to withdraw cash for my personal use?
There are no limitations if you take out cash from the bank. It has been officially announced that cash withdrawals from banks will not be taken into account.
Q5. What if I purchased 2 sets of jewellery and I made the payment by making 2 different bills?
Since part (a) states that the total amount from one person on the same day cannot exceed 2 lakhs, the section will be violated in this instance. Additionally, the recipient, not the payer, is penalised.
Q6. Is exempt income covered in this section?
Both taxable and exempt income may be subject to this section. Accordingly, gifts from family members can also be considered under Section 269ST. Therefore, no cash presents from family members over 2 lakh should be accepted to ensure compliance with this provision.
Q7. Can cash repayments under Section 269ST be split across multiple days?
No, splitting cash repayments into smaller amounts across multiple days to avoid the ₹2 lakh limit is not allowed under Section 269ST.
Q8. Does Section 269ST apply to loan repayments made to NBFCs or banks?
No, Section 269ST does not apply to cash repayments made to banks, NBFCs, or financial institutions, as these entities are exempt from its provisions.
Q9. Are penalties under Section 269ST applicable to both parties?
Yes, penalties can apply to the recipient if they accept cash repayments in violation of the ₹2 lakh limit, but the payer may also face scrutiny.
Q10. Does Section 269ST apply to family loans or informal borrowing?
Yes, the section applies to all cash transactions exceeding ₹2 lakh, even if they are informal loans between family or friends.
Q11. Can cash be used for part-payment of loan instalments under Section 269ST?
No, even part-payments in cash exceeding ₹2 lakh for a single loan instalment are prohibited under this section.
Q12. Are repayments in kind covered under Section 269ST?
No, Section 269ST specifically governs cash transactions. Repayments in kind or through other means are not restricted.
Q13. Does the ₹2 lakh limit under Section 269ST apply per loan or per transaction?
The limit applies to individual transactions, aggregate payments in a single day, or transactions related to a single event or occasion.
Q14. How does Section 269ST impact co-borrowers in a loan?
Co-borrowers are jointly responsible for ensuring repayments comply with the ₹2 lakh cash limit, even if each pays separately.
Q15. What is the penalty for violating Section 269ST in cash loan repayments?
The penalty is 100% of the amount received in violation of the section, which is imposed on the recipient of the cash payment.
Q16. Does Section 269ST apply to repayments made in foreign currency?
No, this section only governs cash transactions in Indian currency and does not apply to foreign currency payments.
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