In Brief: 

Clause 83 of the Finance Bill 2017 has sought to introduce Section 269ST in the Income-tax Act relating to mode of undertaking transactions. 

Rationale behind introduction of Section 269ST:

The logic behind this transaction is to put a restriction on cash transactions and to trace the black money, as the same is usually transacted in cash. In order to achieve its mission of cashless economy and to reduce circulation and generation of black money, the Government has inserted the section 269ST.

Provisions of Section 269ST:

“269ST. No person shall receive an amount of two lakh rupees or more—

• in aggregate from a person in a day; or
• in respect of a single transaction; or
• 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:”

FAQ’s on the above provisions:

Q1. Whether the above provisions would apply to the withdrawals from the Savings and Current account held with the banking company?

A1. The ambit of Section 269ST meaningfully includes monies received by an assesse in respect of a single transaction or on a single day or in respect of transactions relating to one event or occasion from another person(s). The above provisions would not apply to withdrawals made by the Assessee from his/her own bank account. Money withdrawn from bank constitutes own money as distinguished from the money identified in Section 269ST, which envisages money received from third party.

Further, there is no payer-receiver relationship as contemplated in Section 269ST. Therefore, a ceiling limit of Rs. 2 lakhs for cash transactions would not be attracted for cash withdrawals by an assesse from his/her own bank account.

The same is corroborated vide a Press Release issued by Central Board of Direct Taxes dated 5^th April, 2017 wherein it is clarified that – ‘It has also been decided that the restriction on cash transaction shall not apply to withdrawal of cash from a bank, co-operative bank or a post office savings bank. Necessary notification in this regard is being issued.’

Conclusion: Monies withdrawn by self from savings/current account held with a Banking Company would clearly be outside the purview of applicability of Section 269ST.

Q2. Whether the above provisions would apply to the withdrawals from Overdraft accounts of a Banking Company?

A2. It is pertinent to note that Section 269ST should be read in conjunction with Section 269SS. In case money received via Overdraft Account is withdrawn by way cash, proviso to Section 269SS would be invoked which is stated as under:

“Provided that the provisions of this section shall not apply to any loan or deposit or specified sum taken or accepted from, or any loan or deposit or specified sum taken or accepted by,—

• the Government;
• any banking company, post office savings bank or co-operative bank;
• any corporation established by a Central, State or Provincial Act;
• any Government company as defined in clause (45) of section 2 of the Companies Act, 2013 (18 of 2013);
• such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette:”

Conclusion: Withdrawal of cash from Overdraft account is underpinned by the proviso to Section 269SS and the penalty suggested under section 271DA for contravention would not apply.

Q3. Whether an amount of Rs. 2 Lakhs denotes receipt of money/cash or includes receipt in kind also having worth of Rs. 2 lakhs? Whether receipt of an amount of Rs. 2 Lakh rupees otherwise than by way of account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account will cover following modes also within ambit of Section 269ST apart from cash viz., Virtual Money/ Pre paid instruments like Airtel money, Pay TM, Book Adjustment Entries, Perquisites given to Employees in other form [including ESOP], Advances given to Employees as imprest, Gift Deeds/ Will Deeds, Discount offered in mode other than cash like distribution of products free of cost?

A3. Section 269ST is introduced in the Finance Bill 2017 by the following excerpt- ‘In India, the quantum of domestic black money is huge which adversely affects the revenue of the Government creating a resource crunch for its various welfare programmes. Black money is generally transacted in cash and large amount of unaccounted wealth is stored and used in form of cash.’

The categorically highlights the rationale behind introduction of this section, which is to curb the circulation of tainted money which is transacted in the form of cash. Monies received via Virtual Money/ Pre paid instruments like Airtel money, Pay TM, Book Adjustment Entries, Perquisites given to Employees in other form [including ESOP], Advances given to Employees as imprest, Gift Deeds/ Will Deeds, Discount offered in mode other than cash like distribution of products free of cost, would not be covered by the provisions of Section 269ST.

Since the above mentioned transactions are not entered into by way of cash, they are not covered by the provisions of Section 269ST.

Conclusion: Hence, Section 269ST would apply only to receipts in the form of cash.

Q4. The provisions of Section 269ST will not apply to any receipt by Banking Company. In recent Payment Banking Licenses issued by RBI, the Banks are permitted to appoint agents who received cash from customers for deposition in Bank Accounts. Whether cash received by agents of Payment Banks will trigger Section 269ST.

A4. It is pertinent to note that Section 269ST has specifically stated that cash receipts by the following persons are ought to be excluded from the applicability of S. 269ST:

‘It is further proposed to provide that the said restriction shall not apply to Government, any banking company, post office savings bank or co-operative bank. Further, it is proposed that such other persons or class of persons or receipts may be notified by the Central Government, for reasons to be recorded in writing, on whom the proposed restriction on cash transactions shall not apply.’

Cash received by agents on behalf of the bank would partake the character of cash received by the bank since the agent represents his principal. It would be deemed that the payment was received by the banking company and hence section 269ST would not be applicable.

Conclusion: S.269ST would not apply to an agent receiving money on behalf of his principal being a banking company.