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Restriction on Cash Transaction and Penalty  July 12, 2018


Restriction on cash transactions [Secs. 269ST and 271DA] 

In order to achieve the mission of the Government to move towards a less cash economy to reduce generation and circulation of black money, sections 269ST and 271DA are inserted with effect from April 1, 2017. 


Mode of undertaking transaction Section 269ST provides that no person shall receive an amount of Rs. 2 lakh or more otherwise than by an account-payee cheque or account-payee bank draft or use of electronic clearing system through a bank account. This provision will be applicable whether the recipient is seller of goods or service provider or transferor of a capital asset (or any other person).

The ceiling of Rs. 2 lakh will be calculated as follows 


1. Same payer in a day The aggregate amount received (other than by an account-payee cheque/ draft/ use of electronic clearing system through a bank account) from the same person in a day should not be Rs. 2 lakh or more. 


2. Same transaction Amount received (other than by an account-payee cheque/ draft/ use of electronic clearing system through a bank account) in respect of a single transaction should not be Rs. 2 lakh or more. 


3. Same event/occasion Amount received (other than by an account payee cheque/ draft/ use of electronic clearing system through a bank account) in respect of a transaction relating to one event/ occasion from a person should not be Rs. 2 lakh or more. 


When restriction not applicable- The above restriction shall not apply when recipient is Government, any banking company, post office savings bank or co-operative bank.

Further, the above restriction shall not apply when recipient is a person notified by the Central Government. 


When section 269ST is not applicable- Section 269ST is not applicable in the cases given below 

The restriction on cash transaction imposed by section 269ST is not applicable to withdrawal of cash from a bank, co-operative bank or a post office savings bank Notification No. SO 1057(E), dated April 5, 2017. 


Penalty for failure to comply with provisions of section 269ST - (Section 271DA) 


Section 271DA provide for levy of penalty. If a person receives any sum in contravention of the provisions of section 269ST he shall be liable to pay, by way of penalty, a sum equal to the amount of such receipt.

However, Penalty shall not be imposable if such person proves that there were good and sufficient reasons for the contravention. Penalty under this section shall be imposed by the Joint Commissioner

Example- X is a wholesale dealer in computer hardware in Mumbai. On April 17, 2017, he sells goods on credit to Y (vide Invoice No. 3/ 47. amount being Rs. 16,70,000). Payment is made by Y as follows 


1. Payment of Rs. 1.30.000 in cash on April 20, 2017. 


2. Payment of Rs. 4.00.000 by RTGS (from SBI account of Y to HDFC account of X) on April 25, 2017. 


3. Payment of Rs. 1.80.000 in cash on April 26, 2017 (afternoon). 


4. Payment of Rs. 1.10.000 by bearer cheque on April 26, 2017 (late evening) 


5. Payment of Rs. 20,000 by bearer cheque on April 27, 2017. 


6. Payment of Rs 100 in cash on April 28, 2017. 


7. Payment of Rs. 8,29,900 by account-payee draft on March 28, 2017. 


What are the tax consequences of aforesaid payments?

Tax cosequences for recipient X, the recipient, is subject to the following tax consequences 


Payment received (otherwise than by account-payee cheque/ draft/ use of electronic clearing through a bank account) is Rs. 4,40,100 (ta, Rs. 1,30,000 + Rs. 1,80,000 + Rs. 1,10,000 + Rs. 20,000 + Rs. 100). It is covered by section 269ST (even if cash payment/bearer cheque payment in a single day is less than Rs. 2.00.000). The Assessing Officer can impose 100% of Rs. 4,40,100 as penalty under section 271DA. 


Consideration received in cash is Rs. 3,10,100 (ta, Rs. 1,30,000 on April 20. 2017 + Rs. 1,80,000 on April 26, 2017 + Rs. 100 on April 28, 2017). However. section 206C(1D) has been omitted with effect from April 1. 2017. TCS provisions are not applicable. 


X has received more than Rs. 2,00,000 in cash pertaining to Invoice No. 3/47. He is required to report this transaction in Form No. 61A (i.e, statement of financial transaction under section 285BA), if he is subject to tax audit under section 44AB. 


Tax consequences for payer- Payment made in cash/bearer cheque/crossed cheque is covered by disallowanee under Section 40A(3), if such payment in aggregate in a day exceeds Rs. 10,000. Consequently. payment of Rs. 1,30,000, Rs. 1,80,000 and Rs. 1,10,000 will be disallowed in the hands of Y under section 40A(3).