269ST: Exceptions, Penalties & more Under Section 269ST of Income Tax Act

In the budget for 2017, Section 269ST was introduced in the Income Tax Act. Under this section, no person can receive a payment above ₹2 Lakhs in a single day. The main aim of this section is to curb black money laundering transactions.

Sec 269ST of the Income Tax Act complements Section 269SS and 269T, which were introduced for the same purpose. Since these sections have a common goal, ensuring compliance to each can be confusing.

This makes it important to have an in-depth understanding of sec 269ST and protect yourself from the fines imposed in case of non-compliance. Read on to know more.

Why was Section 269ST Introduced?

As mentioned above, the primary goal of introducing Section 269ST is to curb black money laundering. Although Sections 269SS and 269T were already in place for the same reason, introduction of 269ST makes reducing cash transactions to launder black money more effective.

Under Section 269SS and 269T, any repayment or acceptance of a transaction above the amount of ₹19,999 in cash was subject to penalty. However, the court may impose the fine under certain circumstances, such as:

The transaction being genuine and not to launder black money
Transaction being officially recorded in the books of all parties involved
There’s record of the identity and confirmation of the parties involved in the transaction
The transaction does not involve any black money or money from tax evasion

Despite there being a heavy penalty for violating Section 269SS and 269T, the impact was not as expected. As such, to further solidify the means to stop the laundering of black money, Section 269ST was introduced.

Provisions Under Section 269ST

Under this section, parties are prohibited to receive payments of or above ₹2 Lakhs in cash under the following provisions:

In a single transaction

Under this provision, one cannot make a cash transaction of or above ₹2 Lakhs, regardless of whether it is paid in single instalment or spread over days. In simple terms, this means that the total amount as cash for a single transaction should not be above ₹2 Lakhs.

Here’s an example to further simplify the provision:

Particulars	Violation of Section 269ST
A single bill of ₹2 Lakhs	Yes
A bill of ₹2 Lakhs paid in instalments	Yes
A bill under ₹2 Lakhs	No

In a single day

Under this provision, one cannot make a cash transaction of or above ₹2 Lakhs in a single day, even if each bill is under ₹2 Lakhs. In simple terms, this means your total cash payment to a single vendor, even for separate bills, should not be of or above ₹2 Lakhs in cash.

Given below is a table to simplify the provision:

Particulars	Case 1	Case 2	Case 3	Case 4
Bill 1	₹2,00,000	₹75,000	₹90,000	₹75,000
Bill 2		₹1,85,000	₹1,10,000	₹85,000
Total bill amount	₹2,00,000	₹2,60,000	₹2,00,000	₹1,60,000
Total cash receipts	₹2,00,000	₹2,60,000	₹1,90,000	₹1,60,000
Violation of 269ST	Yes	Yes	No	No

For a single event/occasion

Under this provision, one cannot make a cash transaction of or above ₹2 Lakhs for a particular event/ occasion, even if the bills are created on different days.

In simple terms, if you are paying wedding bills of ₹3 Lakhs, divided in three bills under ₹2 Lakhs, you are still in violation of Section 269ST. Given below is a table to further illustrate and simplify the provision:

Suppose, a bride/groom receives the following cash gifts on wedding:

Particulars	Cash receipts	Violation of 269ST
Cash gift of ₹1,500 on by 150 guests	₹2,25,00	No, as no single person paid ₹2 Lakhs or above
Cash gift of ₹1,50,000 on wedding and of ₹60,000 on reception by one person	₹2,10,000	Yes, one person paid over ₹2 Lakhs to a single person
Cash gift of ₹1,50,000 to the bride/groom and ₹50,000 to their parent	₹2,00,000	No, no single person received ₹2 Lakhs or above from a single person

Exceptions under Section 269ST

Following are the exceptions under Section 269ST, Income Tax Act:

Transactions of the nature mentioned in Section 269SS of the Income Tax Act
Individuals/Entities mentioned below are exempt:
1. Government
2. Post office savings bank
3. Banking company
4. Co-operative bank
Any other persons/individuals or a class of persons/receipts specified by the Government

Penalties in case of Non-Compliance Section 269ST

Non-compliance of the Section 269ST of the Income Tax Act, 1961 attracts a penalty that is equal to the transaction amount that resulted in violation. This means that if you pay ₹2,65,000 in cash under any of the provisions of Section 269ST, you may be liable to pay a penalty of ₹2,65,000.

It is important to remember that the penalty for non-compliance of Section 269ST may not be imposed if one proves that the reasons for the transaction were ‘good and sufficient’ as per the rules.

However, it is also crucial to keep in mind that the section does not specify what constitutes as a ‘good and sufficient’ reason to contravene Section 269ST. As a result, it becomes crucial to ensure that payments against bills are done carefully and in accordance with the rules.