Update from Press Release on 5 April 2017
IT Department has been decided that the restriction on cash transaction shall not apply to withdrawal of cash from a bank, cooperative bank or a post office savings bank. ( so for withdrawls no peanlty will be leived)
Article dated 02 April 2017
Deposit or withdrawal of cash more than 2 Lakhs in bank will attract equal amount of penalty from 1 April 2017
A clampdown on black money was one of the major electoral promises of the National Democratic Alliance (NDA) and the government has taken a number of steps. One of the biggest step other than demonetization is restriction on cash transaction. As part of Union Budget 2017, Union finance minister Arun Jaitley has set the legal limit for cash transactions, Rs 2 lacs. From 1st April onward any transaction above Rs. 2,00,000/- shall be strictly done only through banking channels or will attract penalty of equal amount
What is new Section 269ST says
‘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”
Therefore, in light of the above the government has proposed to ban all types of transactions in cash above Rs. 2 lacs from 1 April 2017
Restriction of withdrawal and deposit from bank of more than 2 Lacs
What if you withdraw from your bank account an amount of more than 2 Lacs? From literal Interpretation of the Section any amount received by a person in a single transaction of more than 2 Lacs will be liable for the penalty of equal amount. So for example if you withdraw Rs 5 Lacs from Bank you may be liable to pay penalty of Rs 5 Lacs irrespective of what you do with that amount.
Similarly, What if you deposit into your bank account an amount of more than 2 Lacs? Unless you prove that you have received cash from different person on different occasion or event or on different days, you will be liable to pay the penalty of similar amount. For example, if a person has deposited 5 Lacs in a single day in banking system, it will be assumed that he has received cash of more than 2 lacs and deposited the same in banking system, unless he is able to provide otherwise.
What is liability in case of withdrawal or deposit in Bank amount of more than 2 Lacs?
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. Further the penalty will be not be levied if such person proves that there were good and sufficient reasons for the contravention.
What are good and sufficient reasons will be decided on a case to case basis by the joint commissioner as the joint commissioner has the power to levy such penalty
The important point to note is, penalty will be applicable on the person who has received the cash and not to the person who has given cash. So in case you are withdrawing from bank as self cheque of more than Rs 2 Lacs, for example Rs 6 Lakhs you will be liable for penalty of Rs 6 Lacs, as you have received Rs 6 Lacs from Bank. Also in case you are depositing more than 2 Lakhs, for example Rs 5 Lacs and source is cash receipt then too you will be liable for penalty of Rs 5 Lacs.
There is no restriction on payment of cash. However, it is to be noted that there is an existing provision (section40A) for restricting cash payments above Rs. 10,000/- for business purposes.
Who all Person / Individual are covered in the new Section?
Restriction would apply on all persons except those which are specifically exempted. Therefore, section 269ST will be applicable on receipt of cash by all persons such as individuals, HUFs, firms, private companies, public companies, LLP, trusts, charitable Institutions, AOPs, BOIs etc.
Who are the persons and what are the transactions exempted from section 269ST?
The section 269ST would not be applicable in following cases:
“(i) any receipt by—
(b) any banking company, post office savings bank or co-operative bank;
(ii) transactions of the nature referred to in section 269SS;
(iii) such other persons or class of persons or receipts, which the Central Government may, by notification in the Official Gazette, specify”.
Therefore, if Government or a banking company receives any sum in contravention of this section, they would not be liable to any penalty. We need to wait and see if government will come out with list of exempted in near future.
Nature of receipt whether it is capital or revenue, does not matter
Important point to be noted in respect of the proposed new section is that the nature of receipt does not matter. Therefore, even if a person receives a sum which is not chargeable to tax the provisions of this section would apply and he will be liable for penalty. For example if you are selling a car for cash of Rs 3 Lacs and depositing amount in bank, you will be liable for penalty of Rs 3 Lacs.
No PAN No ITR still penalty can be levied
The person receiving the cash has a PAN or not and whether such person is filing income tax return or assessed to income tax or not, he will be still liable for penalty. Source of income or receipt is irrelevant and nature of receipt of such person is also irrelevant.
Withdrawal by self or bearer cheque
Any amount received by cash, bearer cheque, self cheque, shall be liable for penalty if it is more than 2 lacs. Government is expected to provide detail FAQ for better clarity.
For any query you can write to Chirag@cachauhan.in . Before making any decisions do consult your Professional / tax advisor. Author does not take any responsibility for misrepresentation or interpretation of act or rules. Neither the author nor the firm accepts any liability neither for the loss or damage of any kind arising out of information in this document nor for any action taken in reliance there on.