Section 269ST of the Income Tax Act, 1961, imposes strict restrictions on cash transactions to curb black money, promote digital payments, and ensure transparency in financial dealings. Non-compliance with this section attracts severe penalties under Section 271DA. Below is a detailed explanation of Section 269ST, penalties for non-compliance, examples, and defenses available to taxpayers.

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1. Applicability of Section 269ST

Section 269ST prohibits the receipt of cash exceeding ₹2,00,000 in the following scenarios:

1. Single Transaction:
   • Cash received in a single transaction cannot exceed ₹2,00,000.
2. Aggregate Transactions in a Day:
   • Total cash received from a single person in one day cannot exceed ₹2,00,000, even if split into multiple transactions.
3. Transactions Related to a Single Event or Occasion:
   • Cash received exceeding ₹2,00,000 for a single event or occasion is prohibited, even if received over multiple days.

Exemptions to Section 269ST:

• Government entities.
• Banking companies, post offices, or cooperative banks.
• Any other person or transaction as notified by the government.

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2. Penalty for Non-Compliance (Section 271DA)

Penalty Provisions:

1. Amount of Penalty: Equal to the amount of cash received in contravention of Section 269ST.
2. Imposing Authority:
   • The Joint Commissioner of Income Tax (JCIT) imposes the penalty.

Illustration:

• Example 1:
  • Cash received for a single transaction: ₹5,00,000.
  • Penalty: ₹5,00,000.
• Example 2:
  • Aggregate cash received in a day from one person: ₹3,00,000.
  • Penalty: ₹3,00,000.

Scenario	Cash Received (₹)	Penalty (₹)
Single transaction above ₹2,00,000	5,00,000	5,00,000
Aggregate transactions in a day	3,00,000	3,00,000
Cash for a single event or occasion	4,00,000	4,00,000

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3. Objective of Section 269ST

• Curbing Black Money: Prevents unaccounted cash dealings and improves tax compliance.
• Promoting Digital Payments: Encourages use of digital modes of payment like NEFT, RTGS, and UPI.
• Enhancing Transparency: Ensures accountability in large transactions.

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4. Defenses and Relief

Reasonable Cause Under Section 273B:

• Taxpayers can avoid penalties if they prove a reasonable cause for non-compliance.
• Examples of Reasonable Cause:
  • Emergency medical expenses.
  • Lack of banking facilities in remote areas.

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5. Procedure for Imposing Penalty

1. Detection of Non-Compliance:
   • Non-compliance is usually detected during assessments or audits.
2. Issuance of Show-Cause Notice:
   • The Joint Commissioner issues a notice asking the taxpayer to explain why a penalty should not be imposed.
3. Hearing:
   • The taxpayer presents evidence or reasonable cause for non-compliance.
4. Penalty Order:
   • If the explanation is unsatisfactory, the JCIT imposes the penalty.

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6. Relevant Case Laws

1. Dilip Kumar v. CIT (2018):
   • Highlighted that penalty provisions should be strictly construed, and taxpayers must substantiate claims of reasonable cause.
2. ACIT v. Smt. Asha Patel (2019):
   • Affirmed the imposition of penalties for cash transactions exceeding the prescribed limit.

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7. Key Differences Between Section 269ST and Other Provisions

Aspect	Section 269ST	Other Provisions (e.g., Section 40A(3))
Applicability	Restricts cash receipts above ₹2,00,000.	Restricts cash payments above ₹10,000.
Penalty	Equal to the amount received in violation.	Disallowance of expense in computing income.
Reasonable Cause Defense	Available under Section 273B.	Not explicitly available.

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8. Appeals Against Penalty Orders

Taxpayers can challenge penalties imposed under Section 271DA:

• To Commissioner (Appeals): File under Section 246A.
• To Income Tax Appellate Tribunal (ITAT): If necessary.

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Conclusion

Section 269ST aims to strengthen financial transparency by discouraging large cash transactions. Non-compliance attracts significant penalties under Section 271DA, emphasizing the importance of adhering to these restrictions. Taxpayers must ensure compliance by using digital payment methods and maintaining accurate transaction records to avoid penalties.

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Additional Resources

Learn more about Tax Provisions on the official Income Tax India website.

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