Analysis of Section 269ST and its impact. Cash receipts. Cash withdrawals from banks. E-wallet.

1. Analysis of Section 269ST of the Income-tax Act, 1961
-CA Nemish J. Shah
In the recent times, the Modi Government has made attempts to curb black
money through various schemes such as Voluntary Income Disclosure
Scheme, Demonetization and Income Disclosure Scheme – Pradhan Mantri
Garib Kalyan Yojana.
Recently, in order to achieve the mission of the Government to move
towards a less cash economy to reduce generation and circulation of black
money the government introduced a new section 269ST in the Income-tax
Act, 1961 by the Finance Act, 2017.
In this article an attempt has been made to analyse the provisions of Section
269ST of the Income-tax Act, 1961.
Section 269ST reads as under:
“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:
Provided that the provisions of this section shall not apply to—
(i) any receipt by—
(a) Government;
(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.
Explanation.—For the purposes of this section,—
(a) “banking company” shall have the same meaning as assigned to it in clause
(i) of the Explanation to section 269SS;
(b) “co-operative bank” shall have the same meaning as assigned to it in clause
(ii) of the Explanation to section 269SS.”

2. From the above, we would like to divide the section under three
categories:
a) Cash receipt from a person
The provision state that no person should receive Rs. 2,00,000 in
aggregate from a person in a day. That means, you cannot split
receipts aggregating to more than Rs. 2,00,000 from a SINGLE
person in a DAY i.e. to say that a person may receive cash
aggregating to more than Rs. 2,00,000 from different persons in
single day or from single person on different days.
Illustration:
Nature of Cash transactions Section 269ST
attracted?
A receives 5 installments of Rs. 50,000 each
from B in a single day
YES
A receives 5 installments of Rs. 50,000 each
from B in a different days
NO
A received Rs.150,000 from B and 80,000
from C in single day
NO
A received Rs.150,000 from B and 80,000
from C in different days
NO
A receives Rs. 3,00,000 from B against 10
different invoices of Rs. 30,000 in a single
day.
YES
A received Rs. 2,20,000 in respect of invoice
raised earlier from B
YES
b) Cash receipt in respect of a single transaction
The provisions state that cash receipt is prohibited even if it
aggregates to more than Rs. 2,00,000 in respect of a SINGLE
TRANSACTION. i.e. to say even if cash received on different
days in respect of a single transaction then it is covered under
Section 269ST.
Illustration:
Nature of Cash transactions Section 269ST
attracted?

3. A receives Rs. 1,30,000 and Rs. 71,000 from
B against Single invoice on different days
YES
A received payment of more than or equal to
Rs. 2,00,000 in respect of construction of
building over a period of six months.
(construction of building is treated as single
transaction)
YES
c) Cash received in relation to transactions relating to one event or
occasion from a person
The provision widely covers all receipts from a person relating to
one event or occasion such as cash gifts on the occasion of
marriage, birthday, anniversary etc.
Even gift received from relatives are now covered under the
ambit of Section 269ST.
Illustration:
Nature of Cash transactions Section 269ST
attracted?
A receives Rs. 1,30,000 and Rs. 71,000 from
B on different days on account of his
marriage
YES
A receives Rs. 2,30,000 from B on single
day/different days on account of his birthday
YES
A received Rs. 1,99,999 and his wife receives
Rs. 1,99,999 from many people on account of
their marriage
NO
A received Rs. 2,00,400 from many people on
account of his marriage anniversary
YES
Exceptions carved out in Section 269ST
The provisions of this section are not applicable if the amount is
received by the Government, Banking Company, Post Office or Co-
operative bank.
Further, if a particular transaction is covered under Section 269SS
(where the limit is Rs. 20,000), it will not be covered here.

4. Issues arising under this Section
 Cash withdrawal from bank account:
o The provisions clearly spell out that a person shall not
receive an amount of Rs. 2,00,000 in aggregate from
another person in a day.
o Here the main condition of application of this provision is
that the person should have received an amount from
another person whether on account of sale or loan
repayment or gift or any other reason whatsoever.
o It is worthwhile to note that when a person opens a savings
account or current account with a bank, he is actually
allowing the bank to safe-keep his money and the principal-
agency relation is established. Thus, the money which is
deposited into the bank account does not belong to the bank
but the customer. The bank cannot any time deny repaying
that amount to the customer.
o Further, when the customer issues cheque of that bank to
some another person, he actually instructs his own bank to
pay his own money to the person mentioned in the cheque.
o Thus, it cannot be treated as the asset of the bank.
o Furthermore, bank balances are not shown in books of
account as receivables or loans and advances but as
separate asset alongwith cash balance.
o Thus, from the above it is quite clear that balance with the
bank in savings or current account is the money of the
accountholder and not bank.
o The provision does not apply to money received by a person
from himself.
o Overdraft or CC account are not covered by the provisions
of Section 269ST as they are in the nature of loan and so as
per the exception, it is covered under Section 269SS.
(Section 269SS exempts amount received from banks)
o In the conclusion, if it is interpreted that provisions of
Section 269ST are also applicable to cash withdrawals
from bank account, then though daily items are
unlikely to be impacted but unorganized sectors may
face hard time. This is clearly not the legislative
intent, and if that be, the banks should have been

5. advised by the RBI not to allow withdrawals in excess
of Rs. 2,00,000 per day.
 Covering of receipts through E-wallets:
o This section does not cover receipts through e-wallets.
o Though ideally, any amount of money can be loaded in such
e-wallet through banking modes only.
o Further, Encashment of the balance in e-wallet can be either
done through purchase or transferring it to bank account.
Thus, there is no cash involvement under such transactions.
o We may wait for the clarification or notification in this
regard.
Dated: April 05, 2017
Disclaimer: The contents of this document are solely for informational purpose. It
does not constitute professional advice or a formal recommendation. Persons should
seek independent professional advice before relying on the information in this Article.
The author does not accept any liabilities for any loss or damage of any kind arising
out of any actions taken in reliance thereon.