Prior to Section 269ST
Before the introduction of Section 269ST, provisions from Section 269SS and Section 269T of the Income Tax Act were applicable. These sections were designed to discourage the acceptance and repayment of any loans, deposits or specified sums through liquid cash for more than INR 19,999.
The mandation that cash transactions should not exceed Rs.19,999 was initiated to check and to curb the use of black money. However, the results did not yield what was expected. The Courts would levy severe punishment for those who contravened the provisions of these sections. However, a person was not held liable if the Courts have cause to believe that an individual acted with bona fide intentions and not for generating black money.
No penalty will be leviable under Section 269SS and Section 269T if the transaction performed by the taxpayer has the following properties:
If the transaction in question appears to prima facie be genuine.
When the transaction is officially recorded in books of the involved parties of the deal.
If the identity and confirmation of the parties involved in the transaction are on record.
If the transaction does not involve any black money, tax evasion or wrong intentions.
Introduction of Section 269ST
The Finance Act of 2017 introduced Section 269ST in the Income Tax Act with effect from April of 2017. This section was implemented in order to make provisions to restrict cash transactions as the effectiveness to control black money could not be achieved by the previous sections. Section 269 of the Income Tax Act states that no person/ individual must receive an amount of INR 2 lakhs or more under the following conditions:

In total from another person/ individual in a day. However, a person may receive an amount below INR 2 Lakhs in cash in a day from an individual.
If an individual splits the amount into various invoices of smaller values, then the individual on the receiving end cannot accept the same.
If an individual receives cash from multiple small and different transactions but is related to a single occasion or event, the person on the receiving end can not accept cash. However, they may do so through an account payee cheque, an account payee bank draft or the use of an electronic clearing system through a bank account.
Exceptions under Section 269ST
The following are the exceptions under Section 269ST of the Income Tax Act:

The provisions of Section 269ST of the Income Tax Act would not applicable to the following.
The Government
Any banking company
Any post office savings bank
Any co-operative bank
Transactions with a nature mentioned under Section 269SS of the Income Tax Act are considered exceptions under this Section.
Any other individual/ person or a class of persons or receipts that the Central Government may specify through the notification in the Official Gazette.
Penalties under Section 269ST
An individual or person who contravenes the provisions of Section 269ST by receiving an amount of INR 2 Lakhs, the concerned individual would be liable to pay an amount as penalty. However, if the person has the capability to prove that there were significant reasons for the contravention, the Court may free the individual from the liability of any penalty.
Taxpayers should note that the Act does not mention or clarify what good and sufficient reasons to contravene would constitute. The legislative intent behind the introduction of Section 269ST is to direct India towards a digital economy while, at the same time, curbing black money in a more effective manner.
A new Section 271DA was introduced under the Income Tax Laws and Rules. According to this Section, if an individual receives an amount in contravention to any of the provisions or rules of Section 269ST, they would be held accountable to pay a penalty of the total sum equal to the amount that was received in cash. Thus, in layman terms, the penalty amount would be 100% of the amount that was acquired in contravention of this section.
Practical Implications
The Government of India has introduced this Section in order to keep a check on illegal money and to add the concept of tax transparency in relation to the transactions that are initiated in the country. Therefore, the following are to be followed by an individual while starting a deal and certify that they are compliant under the provisions of this section:

Every transaction must be verified. It does not matter if the transactions are joint or single; they have to be verified.
Every payment must match with their respective transactions.
The verification of cash payments is essential against the following.
Every bill, transaction or event (Payment received against which transactions and bills).
Cash payments made on every date.
Payee details, i.e., who is paying and against which bill on which date.
If the transactions are related or not related then:
the limit of single transactions along with
per day
per entity limit
Therefore, while initiating a cash payment, the following levels of check have to be executed:

Daily limit check
Transaction or every bill check
Entity or paying party check
Update on Section 269ST
An individual may repay their loan amount to any Housing Finance Company or Non-Banking Finance Company in terms of cash under the condition that each loan instalment is less than INR 2 Lakhs. Subsequently, after the introduction of this Section, various representations were sent by NBFCs and HFCs as to whether the limit of INR 2 Lakhs applies to one instalment of the loan repayment or for the whole amount of such repayment.

Under this context, the ITD clarified that if an individual is repaying the loan to HCFs or NBFCs, then the one instalment of the loan repayment shall constitute a single transaction. Therefore, if a single loan instalment amount is less than INR 2 Lakhs, it could be paid in cash. All the instalments paid for a loan would not be aggregated for the purpose of determining the applicability of INR 2 Lakhs limit.

APPLICABLE FROM 01/04/2017
PROVISION OF SECTION 269ST No person shall receive an amount of two lakh rupees 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, otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed.

EXCEPTIONS (a) Government;

 

(b) any banking company, post office savings bank or co-operative bank;

(c) transactions of the nature referred to in section 269SS;

(d) such other persons or class of persons or receipts, which the Central Government may, by notification in the Official Gazette, specify.

PENALTY FOR NON COMPLIANCE SECTION 271DA 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

 

Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner.

ANALYSIS IN-DETAIL

APPLICABLE FROM
01/04/2017
APPLICABLE TO
Any person – Individual, HUF, Firm, LLP, Company, Trust…
TYPE OF RECEIPT
Any Receipt – Whether capital or revenue.
MAXIMUM CASH  RECEIPTS PERMISSIBLE
Below Rs. 2,00,000/-
PENALTY FOR CONTRAVENTION
100% of Amount Receipt
 EXAMPLES OF TRANSACTIONS COVERED
In aggregate from a person in a day
Cash Receipts on a Single Day
CUSTOMER
A
B
C
D
Bill 1
2,50,000/-
50,000/-
1,90,000/-
1,00,000/-
Bill 2
1,50,000/-
5,000/-
25,000/-
Bill 3
85,000/-
TOTAL
2,50,000/-
2,00,000/-
1,95,000/-
2,10,000/-
PENALTY
YES
YES
NO
YES
PENALTY AMT
2,50,000/-
2,00,000/-
NIL
2,10,000/-
Cash Withdrawal from bank on a Single Day
BANK
BANK A
BANK B
BANK C
Cash Withdrawal 1
50,000/-
1,95,000/-
1,00,000/-
Cash Withdrawal 2
1,50,000/-
1,10,000/-
TOTAL
2,00,000/-
1,95,000/-
2,10,000/-
PENALTY
YES
NO
YES
PENALTY AMT
2,00,000/-
NIL
2,10,000/-
Cash Receipt from Sale of Car [ Assuming Sale Value Rs. 4,00,000/- ]
PARTICULARS
CASE 1
CASE 2
CASE 3
Cash Receipts
4,00,000/-
2,00,000/-
1,00,000/-
Non-Cash Receipts
2,00,000/-
3,00,000/-
TOTAL
4,00,000/-
4,00,000/-
4,00,000/-
PENALTY
YES
YES
NO
PENALTY AMT
4,00,000/-
2,00,000/-
NIL
 
in respect of a single transaction
Payments received in Cash and Other than Cash
 
CUSTOMER
X
Y
Z
W
01/04/2017
Invoice Value
4,00,000/-
4,00,000/-
4,00,000/-
4,00,000/-
05/04/2017
Chq Pmt 1
1,00,000/-
1,00,000/-
1,50,000/-
2,00,000/-
10/04/2017
RTGS / NEFT
1,50,000/-
1,50,000/-
 
15/04/2017
Cash Pmt 1
50,000/-
1,00,000/-
70,000/-
75,000/-
20/04/2017
Cash Pmt 2
50,000/-
1,00,000/-
30,000/-
75,000/-
25/04/2017
Cash Pmt 3
50,000/-
1,00,000/-
 
50,000/-
 
TOTAL
4,00,000/-
4,00,000/-
4,00,000/-
4,00,000/-
 
TOTAL NON-CASH
2,50,000/-
1,00,000/-
3,00,000/-
2,00,000/-
 
TOTAL CASH
1,50,000/-
3,00,000/-
1,00,000/-
2,00,000/-
 
PENALTY
NO
YES
NO
YES
 
PENALTY AMT
NIL
3,00,000/-
NIL
2,00,000/-
 
in respect of transactions relating to one event or occasion from a person
IN CASE OF INDIVIDUAL (Occasion: Marriage or Any other Events)**
SITUATION
1
2
3
CASH FROM A
1,90,000/-
2,00,000/-
2,50,000/-
CASH FROM B
1,50,000/-
1,25,000/-
50,000/-
CASH FROM C
1,60,000/-
1,75,000/-
2,00,000/-
TOTAL CASH
5,00,000/-
5,00,000/-
5,00,000/-
PENALTY
NO
YES
YES
PENALTY AMT
NIL
2,00,000/-
4,50,000/-
** On plain reading of the provisions of the section, no person can receive cash of Rs. 2,00,000/- or more on one event or occasion from a person. In other words, the restriction is on per person per event / occasion.

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