Whether Income Tax can be Abolished ?

Income Tax Vs. Bank Transaction Tax

  • There are excellent arguments in favour of abolishing the income tax in India. Given the chaos that surrounds the system currently, the leakage, it doesn't even pass the usual equity desires of making sure that the richer people carry a larger part of the tax burden and as we all should know an income tax is an inefficient method of taxation to boot. So, the start of this idea is just fine, that perhaps India should cut through the Gordian Knot by just abolishing that income tax system altogether.
  • However, there is then the question of where to gain that necessary revenue from in the absence of that taxation system. And that's where this idea fails and fails horribly. A bank transaction tax--any transaction tax in fact--would be far worse than even the current income tax system. Plus, of course, a bank transactions tax would push everyone back into the cash and black money economy we've all just spent so much time and effort trying to destroy.
  • So, good marks for describing the problem, none at all for the solution: The most damning evidence of evasion was the fact that out of 7.6 million individuals who declare incomes above Rs 5 lakh, 5.6 million are in the salaried class, for whom the taxes are deducted at source. Clearly, it cannot be the case that India has only two million businessmen and self-employed people who earn incomes above Rs 5 lakh. Tax evasion is rampant in the country and is especially high among the non-salaried class.
  • That's the evidence of the failure of the current system. As Adam Smith remarked there's nothing wrong, indeed much just about, with insisting that those with higher incomes should carry a more than in proportion burden of the tax system. Thus we're just fine with the general concept of a progressive income tax. Yet as we can see the current system isn't in fact progressive, we all know that the salariat is making less than those (at least, some of those) running their own businesses but it's the salariat paying the income tax. Thus we fail that equity test of the tax system.
  • Once we've agreed that then we want to go and look at the efficiency of the system. And India's tax system is not greatly known for that in any manner. However, in economic terms we do have a spectrum of taxes, from high efficiency to low. That spectrum runs land value tax, consumption tax, income tax, capital and corporate tax, transactions taxes.
  • For those who don't quite get the jargon here, a consumption tax is a sales tax, perhaps a VAT like the GST just coming. Yes, it's collected upon transactions but a sales tax is once only at the retail point, a VAT (or the GST) is collected in stages but it amounts to just the one rate in total at that retail point. A transactions tax is quite different, it's a tax on each and every transaction. Say it was of 1% on each transaction, just to invent a number. So, the miller buys the wheat from the farmer, 1% is paid, the miller sells the flour to the baker, 1%, the baker to the shop, 1%, the shop the bread to the consumer, 1%. But now think about a more complex and possibly more efficient economy. The farmer to the grain trader, the grain trader to the miller, the miller to the flour trader, the trader to the baker, the baker to the wholesaler, the wholesaler to the shop and so on. We've more transactions and thus more tax points and thus more tax being paid upon the same process, turning wheat into bread.
  • Say the VAT or GST or sales tax on bread was 10%. The consumer would be paying 10% whatever the system, however many transactions there were in the process of bringing the bread to where it may be eaten. A transactions tax charges different amounts dependent upon how much division and specialisation of labour we've got in that supply chain. Worse, the more we have the more the tax rate is in total. And that's really not something we want to do, tax the division and specialisation of labour, that's the very thing which makes us richer (Adam Smith again).
  • Transactions taxes are thus a very bad idea. They're worse than other forms of taxation in terms of efficiency. But the suggestion is that instead of the income tax we should have a transactions tax:
  • Also, a loss of over Rs 3 lakh crore that the move would entail can be easily replaced with much more efficient mechanisms. A banking transaction tax can be considered. A small tax on any banking transaction in an economy can vastly increase the government's tax base and revenue compared to the current inefficient method.
  • No, that's much more inefficient, a terrible idea. We want to move left along our spectrum, to more efficient taxes, not right to less. Raise the level of the GST perhaps, have a land value tax maybe, but replacing an income tax with a bank transactions tax is not something we want to do.
  • Quite apart from anything else we get less of whatever it is that we tax. And we've just gone through great pain to encourage people to stop using cash and use banks instead. Taxing bank transactions would entirely reverse that, wouldn't it?

Blog # 15. Metamorphosis : The New Tomorrow ~ Digital & Forensic

A unique IT National Conference : “Metamorphosis : The New Tomorrow ~ Digital & Forensic", hosted by Ahmedabad branch of WIRC of ICAI is all set to become premier gathering in the area of IT audit / assurance, Security & Control Professionals IT risk management, Governance, Forensics and just about anyone interested in Topics like Digital Currency, ERP for SMESs MSMEs, Big Data, Money Laundering, Forensics, Digital Footprints, IOTs etc.

It will be a Happening Event of Knowledge, Opportunities, Learning, Wisdom, Live Demonstration and Case Studies, with best of the best Speakers from the Country. Don’t forget to spread the word.

This Round Table Conference is set to be held on 11th & 12th August, 2017 @ Golden Glory Hall – Karnavati Club, Ahmedabad.

For more details & Registration visit :

Blog # 14. All about Aadhar Privacy Case

  • The Supreme Court today observed that it is nearly impossible to define privacy, which is not absolute and the state cannot be prevented from imposing reasonable restrictions on citizens, according to a report by The Hindu. The nine-judge bench of the apex court, which is looking into the limited matter of right to privacy, attached to the Aadhaar case, also observed that any attempt to define privacy may cause more harm than good. The hearing in the privacy matter will continue on the second day tomorrow.
  • The petitioners today put forth a statement by Finance Minister Arun Jaitley, which he had given in the parliament while moving the Aadhaar Bill. “The present bill presupposes and is based on a premise, and it’s too late in the day to contest that privacy is not a fundamental right. Privacy is not an absolute right, which is subjected to a restriction established by law on a fair and just procedure,” Jaitley had said.
  • In past, the Apex court has held that right to privacy is not a fundamental right. On Tuesday, however, the Supreme Court observed, “In a Republic founded on a written Constitution, it is difficult to accept there is no fundamental right to privacy.” The court’s observation put a put a question mark on the government’s apparent efforts to make Aadhaar mandatory for access to a number of state-sponsored doles and services as well as for taxation and other aspects of regulatory governance. The court also formed a nine-judge bench headed by Chief Justice J S Khehar to decide on the privacy debate.
  • The top court on Tuesday also said that the larger bench would examine the correctness of the two judgements delivered in the cases of Kharak Singh and M P Sharma in which it was held that right to privacy was not a fundamental right. While the Kharak Singh judgement was delivered by a six- judge bench in 1960, the M P Sharma verdict was reported in 1950 and was delivered by an eight-judge Constitution bench, according to PTI.
  • The nine-judge bench also include justices J Chelameswar, S A Bobde, R K Agrawal, Rohinton Fali Nariman, Abhay Manohar Sapre, D Y Chandrachud, Sanjay Kishan Kaul and S Abdul Nazeer.

Blog # 13. Hon’ble Gujarat High Court raps RBI for giving Directions to NCLT

The Hon'ble Gujarat High Court today rebuked the Reserve Bank of India for asking the National Company Law Tribunal in its June 13 directive to give priority to the insolvency proceedings against companies with huge debts.
It also questioned the functioning of the central bank.
The bench of Justice S G Shah came down heavily on the RBI for stating in its press release dated June 13, 2017 that the Insolvency and Bankruptcy Code (IBC) proceedings against companies with outstanding dues of more than Rs 5,000 crore “will be accorded priority by NCLT.”
Essar Steel had moved the high court challenging the RBI order to banks.
The court also questioned the “functioning” of the RBI for its decision to issue the press release in which it had directed banks to initiate insolvency proceedings against defaulting companies.
“The RBI has to be careful while issuing press releases, it must be in consonance with the Constitutional mandates, based upon sound principles of law, but in any case should not be in the form of advise, guidelines or directions to judicial or quasi-judicial authorities in any manner what so ever,” the court said in its order.
Further reacting to the central bank’s submission that it has no document on record based on which the decision to issue press release was taken, the court said, “This goes to show the manner in which the RBI is functioning, in as much as there is a press release even without a decision at certain level that press release is to be published and what should be included in such press release.”
“This is also an equally serious issue. It has been conveyed to the respondents that on such disclosure that there is no other document, pursuant to such disclosure, now, they would be debarred from relying upon any such document, if any,” it added.
The court interpreted RBI’s statement in its press release that “such cases (for insolvency proceedings) will be accorded priority by the NCLT” that the tribunal “has to give priority to cases filed by the directives of RBI against the cases, which are filed by other creditors or petitioners before the NCLT.”
The RBI even tendered an apology to the court saying that the statement was made due to “poor drafting” of the press release, and even issued corrigendum on July 8, to delete the line.
Through in a press release dated June 13, the RBI had directed banks to launch IBC proceedings against companies with outstanding dues of more than Rs 5,000 crore, and for other NPAs, banks should finalise resolution plans in the next six months.
During its submissions, the central bank had apologised from the court for issuing that statement in the press.

Essar Steel had moved the high court seeking the court’s direction to quash the RBI’s direction to the banks to initiate insolvency proceedings against it.

Blog # 12. Half Monthly Digest (Income Tax) - July 2017

In this edition, we have analysed few orders. A very brief catch note of the related section of The Income Tax Act, 1961, indicates the contents of the order. For reading the whole order, click on the hyperlink attached with the name of the order.

S.221(1). Penalty u/s 221(1) cannot be levied on the interest component charged on “tax”.




221(1) – Penalty u/s 221(1) cannot exceed the amount of “Tax in arrears”


S.37(1). Predevelopment expenses which are directly identifiable with the operations and maintenance of existing business shall be treated as revenue expenses, irrespective of treatment given in the books of accounts.




44AA. Separate books of accounts would be justified only when several distinct business are carried on and not when several business activities are carried on within the same business.



S.68. Where the assessee during the course of assessment proceedings, produced all the documentary evidences to prove identity, genuineness and creditworthiness of share applicants, addition u/s 68 of the Act cannot be made on the ground that the appellant could not produce share applicants in person.



Disclaimer:  The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we have taken due care and precautions in providing accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. Errors can occur. We assume no liability or responsibility for any errors or omissions in the contents contained herein neither does it give any guarantee of completeness, accuracy or timeliness. The information and data contained herein may be used at your sole risk after ensuring its accuracy, correctness or completeness.

Quotes : 
Everybody pities the weak, Jealousy you have to earn

Blog # 11. Attachments under Prohibition of Benami Propert Tranactions Act, 1988 and Initial Response

Under the provisions of Prohibition of Benami Property Transactions Act, 1988, the attachments are made as per the provisions of Section 24 by an Initiating Officer. 
Who are Initiating Officers ?
As per Section 2(19) of Prohibition of Benami Property Transactions Act, 1988, initiating officer means an Assistant Commissioner or Deputy Commissioner as defined in clause (9A) and (19A) respectively of section 2 of the Income Tax Act, 1961.
As per Section 2(9A) of the Income Tax Act, 1961 , "Assistant Commissioner" means a person appointed to be an Assistant Commissioner of Income-tax  [or a Deputy Commissioner of Income-tax] under sub-section (1) of section 117;] And As per Section 2(19A) of The Income Tax Act, 1961, "Deputy Commissioner" means a person appointed to be a Deputy Commissioner of Income-tax under sub-section (1) of section 117;
Accordingly, proceedings under The Prohibition of Benami Property Act, 1988 as amended by the present Modi Government can be initiated by an Assistant Commissioner or Deputy Commissioners of Income Tax. After receiving evidences/material against the benamidar or beneficial owner, if the initiating officer has reasons to believe that the case falls within the purview of Prohibition of Benami Property Transactions Act, 1988 then :-
( 1 )    Record reasons in writing that any person is a benamidar.
( 2 )    Issue notice u/s 24(1) of the Act to the Benamidar asking as to why the property should not treated as benami property.
( 3 )    Notice to Beneficial Owner as well if his identity is known.
( 4 )    If Initiating officer feels that the person who is in possession of Benami Property may alienate such property, then he may attach such property. Procedure of Attaching such property:-
Step No.1         à Previous Approval from Approving Authority.
Step No. II.  à Pass Provisional Attachment Order attaching such Benami property for a period of maximum of 90 days from the date of issuing notice to benamidar.
( 5 )     Thereafter he makes such inquiries, calls for reports or evidences as he deems fit and taking in to account all the materials, if he opines that the property is benami then he may continue such provisional Attachment beyond a period of 90 days or attaches the property if the same has not been attached before 90 days of issuing notice u/s 24(1) of the Act, after :-
Ø  Taking prior approval of Approving Authority.
Ø  Has to again pass an order continuing the provisional attachment. The same shall continue till the time specified in such order or till the order is passed by the Adjudicating Authority.
Ø  Draw up statement of the case and refers it to the Adjudicating Authority.
Or

Revokes provisional attachment after passing an order in writing after taking approval from Approving Authority if he is satisfied that the transaction

Initial Response to be taken if you receive notice u/s 24(1) of the Act :-
( 1 )    Request Initiating Officer to provide materials against you.
( 2 )    Request for the reasons recorded for initiating the proceedings.

Initial Response to be taken in case of proceedings before the Adjudication Authority :
Request for the Case Statement submitted by Initiating Officer.





Blog # 10. Unnecessary Litigations

On May 1, the Supreme Court’s three-Judge bench headed by the Chief Justice of India, J.S.Khehar, had imposed exemplary cost of Rs.25 lakh on the NGO, Suraz India Trust, for filing frivolous petitions, and wasting judicial time, and restrained the trust and its chairman, Rajiv Daiya, from filing any case, including PIL, in any court.
On June 22, the bench gave a reasoned order for its decision. The judgment, authored by CJI Khehar, on behalf of himself, and Justices D.Y.Chandrachud and Sanjay Kishan Kaul.   In its order, accompanying the judgment, the bench said that the imposition of exemplary costs on the Trust would discourage “the instant nature of indiscretion, not only at the hands of the Suraz India Trust, but also at the hands of other similarly placed individuals, who may have been emboldened, to adopt the course treaded by Rajiv Daiya.
Giving details of the 12 different petitions and applications, which were agitated by Daiya in 64 different proceedings since 2009, under the PIL jurisdiction of the Court, the bench expressed its doubts whether Daiya was a proxy litigant, and its dismay over why he should be keen to resolve complex legal questions involving the appointment of Judges in the Higher Judiciary, without having competence to understand the legal nuances himself.  In his petitions, he had challenged the constitutional validity of the Judges Inquiry Act, and repeatedly filed contempt petitions in the matter, when the  Supreme Court dismissed them.
The bench also expressed its dismay over his repeated prayer that his petition ought to have been heard by a 11-Judge bench as a “matter of his imagination, and not founded on any legal basis”.
The bench took note of the fact that Daiya did not attempt to even make the slightest effort, to reason out the same, or to demonstrate the veracity of his actions.  “The petitioner has been seriously remiss, in his judicial interventions”, the bench held.
In Paragraph 26, the bench observed: “Extremely important matters are taken  up for consideration on a daily basis, and they lag behind sometimes, because individuals who were not competent to assist this Court, insist without due cause, to be granted a prolonged hearing.   Hearing is sometimes sought (as in the instant case) even in matters, which the petitioners themselves are incompetent to understand and handle.  All such misadventures have to be dealt with sternly, so as to prevent abuse of judicial time. Specially by such individuals, who freely cast imaginary and scandalous accusations, in making out their submissions.”
The bench made it clear to Daiya that this order should considered as a warning enough, for the future.  It asked him to refrain himself from filing any cause in public interest, either directly or through any other individual, hereinafter, in any court.
The bench directed Daiya to deposit Rs.25 lakhs with the Supreme Court Advocates On Record Welfare Trust, within three months from May 1.  Failing deposit, the costs shall be recoverable from him through his personal proceeds, if necessary, it held.

Blog # 9. Understanding S.269ST of Income Tax Act


Amid the brunt of the De-monetization, which was relatively fresh in the minds of the common people, Budget 2017 spelt out a loud message. The message was very clear; the government wanted the economy to be digitally equipped with no or very less cash transaction. While it seems impossible for the government to have an absolute cash free economy, but the tremors of the change can be felt.
The budget 2017 has brought with it several measures which aims to stop or minimize tax evasion, money laundering and generation of black money. One of such measures happens to be putting a cap on the cash transactions. This has been done by bringing section 269ST which bars persons receiving money in cash. Though section 269SS very well corresponds to the idea and existed since the inception of the Income Tax Act, 1961 (“IT Act”) but the application of such section is limited to only loans and deposits while section 269ST has a very wide scope. The sae is as under for your ready reference:-
269ST. Mode of undertaking transactions.
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.]
 The proposed section is envisaged to have a far reaching effect on the transactions and so much that even withdrawal of money from the banks will also be under the tax net. However, this is only one tremor of the quake and there are more to it. Thus in an attempt to unearth the intricacies, we have tried to collate and analyze a list of questions on the section and its probable impact.

1. What is the intent behind the insertion? When is the insertion effective from?
The intent of the section is clearly to put restriction on the cash transaction and reduce the quantum of black money which affects the revenue of the government. Black money is generally transacted in cash and large amount of unaccounted wealth is stored and used in the form of cash. Therefore in a bid to control unaccounted money, the section has been proposed which will limit cash transactions and in essence the black money. The section will come in effect from the financial year 2017-18 i.e. Assessment year 2018-19 onwards.

2. What does the provisions of the section 269ST say?
 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:
Provided that the provisions of this section shall not apply to—
any receipt by—
  • government;
  • any banking company, post office savings bank or co-operative bank;
  • transactions of the nature referred to in section 269SS;
such other persons or class of persons or receipts, which the Central Government may, by notification in the Official Gazette, specify.

3. What kind of the receipts are within the ambit of the section?
The provisions of the section are applicable to all kinds of receipts irrespective of its nature, if the amount is in cash and above the specified limit.

4. What are the instances that may trigger application of section 269ST?
The transaction is applicable to all such cases where the amount is received in cash and exceeds the threshold limit of Rs. 2 lacs. Further the ambit of the section has been increased by adding certain circumstances.  Let us look at the section :
First limb : Receipt from a person in a day.
It states that a person cannot receive any amount in cash from a single person in a day. This means that if a person is paying Rs. 1,50,000 in cash then the person receiving can receive. However if a person pays in cash in different tranches during the day, the aggregate amount of which is 2 lacs and more, the person receiving cannot receive. So an obvious question comes, if a person pays in cash on different days, then will he be covered. The answer to question lies in the second leg.
Second Limb : In respect of single transaction
It simply states that no single transaction should exceed Rs. 2 lacs or more. Thus if a person splits a invoice relating to a single transaction into different invoices of smaller values, then also the person receiving such amount cannot receive in cash. However what would happen if there are multiple cashflows i.e. typically in case of loan transactions whereby repayment is done in number of installments, the answer to this question lies in the third leg.
Third Limb : In respect of the transaction relating to one event or occasion from the person
 It simply states that if a person receives cash in different transactions but all the transaction relate to one event or occasion, then also the recipient cannot receive cash. That is to say if all the transaction relating to one event adds up to Rs. 2 lacs or more, then the person receiving the same cannot receive. Typically in case of a loan transaction, each EMI will represent an event and consequently it cannot be broken into multiple transactions.

5. What does the term event in the section 269ST mean?
The term “Event” in section 269ST means an accounting event. That is to say, every such event which is required to be accounted for will be termed as an “Event”.  For example, each lease payment in a lease transaction may be called an “Event” as separate invoice is required to be raised. Similarly, each EMI for which a separate invoice is raised will be an “Event”.
Further, the word “event” or “occasion” in the law are vague and may cause a lot of confusion. The intent behind the provision is that people may not split their payments into various tranches and avoid the provision. The extended scope of the offence of the section is, therefore, anti-avoidance, and not to extend the scope of the provision to smaller value transactions which otherwise are not hit by the section.
The legal meaning of the expression “event” is Eventus est qui ex causa sequitur; et dicitur eventus quia ex causis evenit. An event is that which follows from the cause, and is called an “event” because it eventuates from causes.
However, it does not seem that the intent of the law is to use the word event in a legal sense. The context is making of commercial transactions and therefore, the word should be understood in commercial sense.
For example,
  • Example No.1 : if a person sells goods of Rs 2,10,000, for which the payment of Rs 2 lacs is made by cheque immediately. Subsequently, a payment of Rs 10000 is made in cash. Can it be argued that Rs 10000 pertains to a single event, viz., the sale, and therefore, the section is attracted? One must read the section with its opening words, which talk about receiving an amount of Rs 2 lacs or more in cash. Therefore, the transaction or series of transactions must pertain to receipt of Rs 2 lacs or more in the aggregate. In addition, the transactions must be so interrelated or integrated that the effectively form part of the same event, but are segregated merely to avoid the section.
  • Example No. 2 – a person sells goods of Rs 2 lacs. The terms of payment provide for payment in 4 installments of Rs 50000 each over 4 months. The buyer pays the price in cash. Is it a contravention of the section?. Here the underlying issue is the meaning of the term transaction. The transaction, of course, is the making of the payment. Is it possible to argue that the transactions pertain to one event or one occasion? The underlying commercial terms of the transaction provided for 4 payments spread over 4 months. Each payment is an event and it is difficult to argue that the sale is an event, and the payments are simply transactions that follow from that event.
  • Example 3 – assume that a lender has given a loan of Rs 2 lacs. EMIs amount to Rs 10000 per month and are payable over 24 months. Can it be argued that all the EMIs must be aggregated together, because they pertain to the same event, which is giving of the loan? In our view, “one event or occasion” cannot be pertaining the cause or the agreement from which the payments come. As stated before, the intent of the section cannot be hit small amounts such as Rs 10000 in cash – because then there is an unintelligible distinction between a transaction involving a sizeable payment of Rs 2 lacs in one go, and 24 installments over 24 months, with each payment being only Rs 10000. The bar of the section is on large value transactions in cash.

6. Who all are required to comply with the provisions of section 269ST?
The section starts with the words “No persons” and the term person has been defined in the section 2(31) of the IT Act. It includes an individual, HUF, AOP, BOI, Firm company etc. In essence the scope of the section is very wide as it is applicable to all kind of receipts and on every person receiving such receipts.

7. Does it cover cash received by borrowers also?
On a plain reading of the section it appears that all kind of receipts are covered by the section, therefore it appears cash received by the borrowers also gets covered. However when we look at the exclusion part of the section, it states that the provision of the section is not applicable to transaction of nature referred in section 269SS. While section 269SS is applicable in situations where a person receives cash as loan or deposit. Consequently a borrower is not covered by the section 269ST.

8. Are provisions of section 269ST and 269T mutually exclusive?
The provisions of the section 269 ST and 269T are mutually exclusive. Section 269T imposes obligation on the borrower and is restricted to loan and deposits while section 269ST imposes obligation on the recipient and covers all kinds of receipts whether loan, deposits or otherwise.

9. Impact of the section 269ST on NBFCs?
In context of NBFCs, section 269ST would impact the transactions of the following nature, where cash is being used for giving effect to the same
  • Receipt of down payment
  • Acceptance of security deposit
  • Sale of second hand repossessed motor vehicles
  • Refurbishment expenses
Where the quantum of the aforesaid transactions exceeds Rs. 2 lacs, the same would be required to be given effect, through banking channels. Hence the transactions which have been given effect to till date in cash terms, the same will not be possible after this section is enforced.
Further to illustrate, for e.g. where a particular transaction of sale of repossessed asset has been given affect to by an NBFC, and a single invoice of Rs 5,00,000 has been raised by them on the buyer. Generally there is an upfront receipt of cash on the event of sale and if the cash received happens to be Rs. 2 lacs or more then the same will fall under the net of the section.

10. Does the section cover loan repayment also?
Section 269ST states that no person shall receive an amount of Rs. 2 lacs or more:
  • from a single person in a day in cash or
  • in respect of a single transaction or
  • in respect of multiple transactions relating to the same event from a single person.
So, if a company receives any amount in cash whether it is loan repayment or otherwise through a mode other than prescribed, the section will very well apply.

11. If the answer to question 10 is yes, then whether the limit of Rs. 2 lacs received in cash will be calculated by taking: a) repayment during the tenure of loan b) repayment during the financial year c) each EMI received by the company. 
Section 269ST covers loan repayment and is subject to the restrictions given in three legs. The provisions of section 269ST will be applicable in the following cases:
  • Where an amount of Rs. 2 lacs or more is received from a single person against a single transaction;
  • Where an amount of Rs. 2 lacs or more is received from a single person against more than one transactions in a particular day;
  • Where multiple amounts are paid, which adds up to Rs. 2 lacs or more and the same relates to a single event or occasion. By the term event we mean an accounting event and therefore each EMI becomes an event.
CBDT Vide Circular 22/2017 clarified that in respect of receipt in the nature of repayment of loan by NBFCs or HFCs,  the  receipt  of  one  instalment  of  loan repayment in  respect  of  a  loan shall constitute  a ‘single transaction’ as  specified  in  clause  (b)  of  section  269ST of  the Act and  all  the instalments paid for a loan shall not be aggregated for the purposes of determining applicability of the provisions section 269ST. Check Circular 22/2017

12. What is the consequence for the violation of the section?
It has been proposed to introduce section 271DA in the Income Tax Act 1961, the section provides that if a receipt is received in contravention of the provisions of section 269ST, then a penalty equivalent to the amount of such receipt may be levied on the recipient by the Joint commissioner.

Clarification till date by CBDT
  1. CBDT Vide Circular 22/2017 2017 clarified that in respect of receipt in the nature of repayment of loan by NBFCs or HFCs, the  receipt  of  one  instalment  of  loan repayment in  respect  of  a  loan shall constitute  a ‘single transaction’ as  specified  in  clause  (b)  of  section  269ST of  the Act and  all  the instalments paid for a loan shall not be aggregated for the purposes of determining applicability of the provisions section 269ST.
  
Disclaimer:  The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although due care and precautions has been taken in providing accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. Errors can occur. I assume no liability or responsibility for any errors or omissions in the contents contained herein neither does it give any guarantee of completeness, accuracy . The information and data contained herein may be used at your sole risk after ensuring its accuracy, correctness or completeness.