Section 269ST : Cash Transaction Limit

What is Section 269ST?

Section 269ST is a Section in the Income Tax Act that imposes a cash transaction limit on every person (be it individual (non-resident or resident) or Firm or Company) from receiving an amount of INR 200,000 or more other than through an account payee cheque or draft or electronic mode. The transaction limit is applicable to all types of receipts and transactions, whether taxable or not, whether capital or revenue.

The cash transaction limit of INR 200,000 applies:

1. In aggregate from a person in a day;
2. In respect of a single transaction; 
   
3. In respect of transactions relating to one event or occasion from a person.

Scope of applicability

• Receipt of INR 200,000 or more in aggregate from a person in a day: 

This particular clause gets attracted if cash received in aggregate (even in instalments) from the same person in a single day exceeds INR 200,000. In other words, if payments are received from different person in a single day and none of such payment exceeds the specified limit of INR 200,000, even though in aggregate total receipts exceeded INR 200,000, this section would not be applicable.

• Receipt of INR 200,000 or more in respect of a single transaction:

This covers receipt of INR 200,000 in respect of a single transaction, though not on a single day. For example, if a person receives INR 400,000 for a sales invoice in 5 different instalments on 5 different dates, such receipts would fall under prohibited transactions under Section 269ST.

• Receipt of INR 200,000 or more in relation to one event or occasion from a person:

This has a wide scope to cover all receipts from a person in relation to transactions relating to one event or occasion. The Income Tax Act is silent about the coverage of the meaning of the term “event or occasion”. It may cover receipt of cash gifts on an occasion like marriage, birthday or may cover payment received for services like transportation, catering, decoration etc. in a marriage event etc. 

It is very interesting to note that even though gifts among relatives are exempt from tax, now with Section 269ST, cash gifts must be below the transaction limit of INR 200,000.

Penalty for Violation of Section 269ST

A stringent penalty is associated with this particular provision as if a person contravenes the cash transaction limit imposed by Section 269ST, such person shall be liable to pay penalty equal to the transaction value. Note that the penalty exposure is in the hands of payee, i.e., the person who receives the money and not on the payer.

Non-Applicability of Section 269ST

• Receipt of cash by the Government
• Receipt of cash by banking company, post office savings bank or co-operative bank etc.
• Accepting loans or advances (since separately covered through a different Section, Section 269SS)