Section 269ST of Income Tax Act – Cash Transaction Limits & Penalty Rules

Ramesh Verma, a 38-year-old small business owner from Jaipur, was thrilled. After long talks, he finally sold his old bakery equipment for ₹2,65,000 in cash to a nearby café. The buyer wanted to pay in cash, and Ramesh, keen to close the deal, agreed.

But a month later, he got a notice from the Income Tax Department. Why? He had broken Section 269ST of the Income Tax Act.

“What did I do wrong?” he asked his accountant, Pooja.

She said, “Ramesh, you accepted over ₹2,00,000 in cash in one deal. That’s not allowed under Section 269ST.”

This moment changed how Ramesh handled payments. It’s a clear warning for all business owners, freelancers, and traders who still accept large cash amounts. Let’s examine what Section 269ST states and its potential impact on you.

Importance of Section 269ST

Section 269ST was introduced in Budget 2017 and became effective from 1st April 2017. Its purpose is simple: to control the flow of unaccounted cash in the economy and encourage digital and traceable transactions.

Why It Matters:
 

• Reduces tax evasion
   
• Promotes transparency in financial transactions
   
• Keeps businesses and individuals compliant with the law
   
• Helps curb black money circulation

For small business owners like Ramesh, understanding this provision can prevent hefty penalties and legal complications.

Objectives of Section 269ST

Section 269ST has a very targeted aim: restricting high-value cash transactions that could otherwise escape the tax net.

The Three Main Scenarios Where This Section Applies:
 

Let’s connect this with Ramesh’s case. He received ₹2,65,000 in one transaction from a single buyer in cash. This directly violated scenario 2 above.

TDS Rate Under Section 269ST

Here’s an important clarification: Section 269ST does not deal with TDS (Tax Deducted at Source).

But here's how it interacts with tax laws:

• There is no TDS rate specified under Section 269ST.
   
• However, Section 271DA lays down the penalty for violating Section 269ST.

Penalty for Non-Compliance:
 

Ramesh received ₹2,65,000, so the penalty was equal to the amount received, ₹2,65,000. That’s how severe this provision can be.

Exemptions Under Section 269ST

Not all transactions are covered under this section. The government has provided certain exemptions where Section 269ST does not apply.

Exempted Persons/Entities:
 

Let’s assume Ramesh deposited ₹ 3,00,000 in cash from his savings into his bank account. That would not be covered under Section 269ST.

However, if he received ₹ 3,00,000 in cash from a buyer, the section would apply.

Due Date and Compliance Requirements

Section 269ST doesn’t have a “filing” requirement but is enforced through monitoring and scrutiny of cash transactions during assessment or audits.

Compliance Checklist:
 

In Ramesh’s case, Pooja advised him to now refuse any cash payments exceeding ₹1,90,000, just to keep a safe margin under the ₹2,00,000 rule.

Conclusion

Ramesh’s experience is a warning for many business owners. Cash may feel easy, but breaking Section 269ST can lead to a penalty equal to the full amount received.

Ramesh avoided more trouble by using digital payments and keeping large cash deals in check. This not only kept him safe from tax notices but also helped him manage his money better.

Knowing Section 269ST is more than just following tax rules, it protects your savings and your business name. When unsure, opt for digital payments over cash above ₹2 lakh.

Frequently Asked Questions (FAQs)

Q1. Is Section 269ST applicable to cash withdrawals from banks?

No. The section applies to receipts, not withdrawals.

Q2. Can I receive ₹1,50,000 in cash from three different people in one day?

Yes, as long as each receipt is below ₹2,00,000 and from different persons.

Q3. What if I accept ₹2,50,000 cash over multiple days for one invoice?

It still violates Section 269ST. The section considers transaction, not just timing.

Q4. Is Section 269ST applicable to gifts from relatives?

Yes, if a relative gifts you more than ₹2 lakh in cash, it violates the rule.

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