Section 269ST of Income Tax Act - Clarification on the repayment of Loan Instalments in Cash

You can repay your loan amount to any HFC (Housing finance company) or NBFC (Non-banking finance company) in cash provided each loan instalment is less than Rs 2 lakh.

The government introduced a new section 269ST. Under the section, cash transactions exceeding Rs.2 lakh are prohibited with a view to promoting the digital economy.

Section 269ST was introduced by the government to curb the black money and tax fraud in the economy. 

Section 269ST prohibits any person to receive an amount of Rs.2 lakh and above in cash:

• In aggregate from a person in a day, or 
• In a single transaction, or 
• In respect of transactions relating to one event or occasion from a person. 

After introducing this section, various representations were sent by NBFCs and HFCs as to whether the limit of Rs.2 lakh shall apply to one instalment of loan repayment or for the whole amount of such repayment.

In this context, the income tax department clarified that if you are repaying the loan to NBFCs or HFCs, the one instalment of loan repayment shall constitute a single transaction.

 And so if the single loan instalment amount is less than Rs.2 lakh, it can be paid in cash. All the instalments paid for a loan shall not be aggregated for the purposes of determining the applicability of the Rs.2 lakh limit.

Exclusions From the Scope of Section 269ST

This section will not apply to-

• Government
• any banking company
• post office savings bank
• co-operative bank
• other persons/receipts as may be notified
• Transactions referred to in section 269SS (attracted when we accept loan from any person) will be excluded from the scope of the new section 269ST.

Section 269ST of Income Tax Act With Examples

a. If one sells goods worth Rs 4,50,000 through three different bills of Rs.150,000 each to one person and accepts cash in 1 single day at different times then section 269ST(a) will get violated.

b. If one sells goods worth Rs 500,000 through a single bill to another person and receives cash of 2,50,000 on day 1 and another 2,50,000 on day 2 then section 269ST(b) will get violated.

c. X accepts an order of catering, decoration and tent for the marriage event of Y. He accepts cash of Rs.1,00,000 for catering Rs 1,50,000 for decoration and Rs.1,50,000 for tent work then section 269ST(c) will get violated even if cash is accepted on different dates. All the cash transactions related to the same occasion- the marriage of Y.

In all three cases, section 269ST gets violated and penalty u/s 271DA is applicable.

Introduction of Penal Provisions 

The government has also introduced penalty provisions if Section 269ST is violated. 

If a person receives the amount in cash over the above-specified limit of Rs.2 lakh, he is liable to pay a penalty equal to the amount received in cash. 

Thus, it is very important to ensure that you do not receive cash of Rs.2 lakh and above in a single transaction, aggregate from a person in a day, or in respect to transactions relating to one event or occasion from a person. 

For details refer here (As per the CBDT circular no 22/2017 dated 3rd July 2017)   

FAQs

What is the difference between 269SS and 269ST?

Section 269ST of the Act applies to all receipts, whether taxable or tax-free, capital or revenue, except for the transactions mentioned in Section 269SS and other exempted receipts as notified by the Central Government.

What is the limit for cash receipts?

Under Section 269ST of the Income Tax Act, it is prohibited for any person to receive an amount of INR 2 lakh or more in cash, from a person in a day, either for a single transaction or for multiple transactions related to one event or occasion.

Is it illegal to make cash payments?

Paying wages in cash is legally allowed and can be convenient for some businesses. However, certain businesses may intentionally resort to cash transactions to evade tax and evade their responsibilities towards their employees. If you receive cash for the work you do, it is essential to ensure that you are paid at least the correct award wages as per the regulations.