In Budget 2017-18, a ban on cash transaction of more
than Rs 3 lakh has been proposed. The same has been mentioned in the Finance
Bill 2017. But, the Govt of India has made amendment in Finance bill and has
reduced the Cash transaction limit to Rs 2 Lakh.
This amendment has been passed through Finance Act, 2017 and
notified on 31-March-2017. Complete details on Rs 2 Lakh Cash Transaction limit
have been provided in a new section referred to as ‘Section 269ST‘.
As per Section 269ST, any person who
enters into a transaction of Rs 2 Lakh or above in cash, will be liable to a
penalty of an amount equivalent to the amount of transaction.
For example : If
you buy an expensive watch for cash worth Rs 7 Lakh, it is the shopkeeper who
will have to pay the tax (penalty) of Rs 7 Lakh. So, here the
tax rate is 100%.
Though this new section on Cash Transaction limit sounds
simple, we need to go through it in details, as I believe that this may have
quite an impact on our daily financial lives.
What
does Section 269ST say?
With effective from 1st April, 2017, no person shall receive
an amount of Rs 2 Lakh or more;
(A) in aggregate from a person in a day (or)
(B) in respect of a single transaction (or)
(C) in respect of transactions relating to one event or
occasion from a person.
The new Cash transaction limit is not applicable, if a
person receives the amount through an Account Payee Cheque (or) an Account
Payee Bank Draft (or) through use of electronic clearing system through a bank
account. (Looks like, any receipts done through e-Wallets like
Paytm, credit cards etc., may also be hit by this new amendment, need more
clarity though.)
Kindly note that Penalty u/s 271DA will be
imposed on a person who receives a sum of Rs 2 Lakh and above in cash. The
extent of penalty will be a sum equal to the amount of such receipt.
The said penalty shall however not be levied if the person proves that there
were good and sufficient reasons for such contravention.
Section
269ST & Rs 2 Lakh Cash Transaction Limit – Examples
Let us understand the above three points with examples;
A. Single Person: Cash
Receipt of Rs 2 lakh or more, from a single person in a dayis
not allowed even if the amount has been paid through multiple transactions
during the day which are below Rs 2 lakh.
For example : Mr
Modi buys a gold chain worth Rs 2 Lakh and pays the amount by cash to Mr
Rahul on a single day in 4 equal installments of Rs 50,000 each. As Mr Rahul
accepted cash worth Rs 2 Lakh from a single person and in a single day,
section 269ST is applicable in this case. Mr Rahul has to pay a penalty of Rs 2
Lakh.
B. Single Transaction: Cash
receipts of Rs 2 Lakh or more which are related to a single transaction are
prohibited.
For example : Mr
Kejriwal goes through a medical surgery and the hospital charges him a bill of
Rs 4 Lakh. Kejriwal clears the bill in 4 installments of Rs 1 Lakh each on
four different dates. Here, the cash receipts got by hospital are less than
Rs 2 Lakh and have been received on different dates.
Whether this transaction violates section 269ST? – Yes.
Hospital has to pay the penalty. Because, they received the payments with
respect to single bill / transaction. So, splitting of payments over
several days is prohibited.
C. Single Event / Occasion: Cash
transactions or cash receipts related to a single event or occasion, can not be
more than Rs 2 Lakh.
For example :
Nagachaitanya gets married to Samantha. On their wedding occasion, their
relatives gifted Cash amount worth Rs 10 Lakh on different dates. Even if we
assume that each person has gifted cash worth less than Rs 2 Lakh, are these
receipts come under the purview of Section 269ST? Is penalty applicable?
Yes, penalty can be levied. Here, marriage is a ‘single
occasion’ and cash gifts worth Rs 2 Lakh or more can not be received
from relatives and other persons.
Other Important Points
- Based on my interpretation of Section 269ST, payment
modes like bearer cheque and self-cheque will also be considered on par
with Cash based transactions only.
- It has been clearly stated that penalty (if any) is
chargeable to an individual who violates section 269ST, even if you do not
have PAN and/or is not a tax assessee.
- The restriction of receipt of money in Cash
of Rs 2 Lakh or above in cash is applicable irrespective of whether it is
for personal / business purpose, capital or revenue in nature,
tax-free or taxable income.
- Kindly note that the payer of money is not liable to
pay any penalty, it is the receiver of cash who has to bear the penalty
u/s 271DA .
- Donations in cash exceeding Rs 2,000 are not permitted
(Donations can be claimed u/s 80G)
- Premiums on Health insurance policies paid in cash can
not be claimed u/s 80D
- Loans or Deposits can not be repaid in cash in excess
of Rs 20,000 or more
- Payment of above Rs 10,000 per person, can not be made
for any business payment towards any expenses (or) purchase of capital
asset.
- One should not accept a loan or deposit or sale
consideration of immovable assets in cash in excess of Rs. 20,000.
Restriction on Capital
Expenditure for Business in Cash above Rs. 10000/- [Section 32 of the
Income Tax Act, 1961:
- Where an assessee incurs any expenditure for acquisition
of a depreciable asset in respect of which a payment (or
aggregate of payment made to a person in a day), otherwise than by an
account payees cheque/ draft or use of electronic clearing system through
a bank account, exceeds Rs. 10000/-, such a payment
shall not be eligible for normal/ additional depreciation.
Reduction in the limit of Cash
Payment to Rs. 10000/- in a Day [Section 40A(3) & 40A(3A) of the Income Tax
Act, 1961:
- The monetary limit on revenue expenditure in cash has
been reduced from Rs. 20,000 to Rs.10,000(there is no
change in the monetary limit pertaining to cash payment upto Rs. 35000/-
to Transport Contractors). Few exceptions are also provided in Rule 6DD of
the Income Tax Rules.
Consequently, any expenditure in respect of which payment (or aggregate of
payment made to a person in a day), otherwise than by an account payee
cheque/ draft/ use of electronic clearing system through a bank account,
exceeds Rs. 10000/-, no deduction shall be allowed in respect
of such payment under section 30 to 37 of Income Tax Act,
1961.
see more at: https://taxguru.in/income-tax/rs-2-lakh-cash-transaction-limit-wef-01apr2017-details-examples.html
