Understanding Income Tax Penalty for Cash Receipts of ₹2 Lakh or More

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Understanding Income Tax Penalty

In the recent financial budget, the government introduced Section 269ST of the Income Tax Act, which restricts the receipt of ₹2 lakh or more in cash. This section applies to:

(i) Aggregates from a single person in a day.

(ii) Single transactions exceeding ₹2 lakh.

(iii) Transactions related to a single event or occasion from one person.

Let’s clarify this amendment with examples:

(i) Mr. X sells furniture worth ₹4,50,000, issuing three bills of ₹1,50,000 each on the same day. This violates Section 269ST (a).

(ii) Mr. Y sells ₹5,00,000 worth of gold through a single bill, receiving ₹2,50,000 on day one and the remainder on the next day. This violates Section 269ST (b).

(iii) Mr. Z accepts orders for catering, decoration, and venue rent for Mr. A’s wedding, receiving ₹1,00,000, ₹1,50,000, and ₹1,50,000 in cash on different dates. Section 269ST (c) is violated since all transactions relate to one event.

In all three cases, Section 269ST is violated, and a penalty under Section 271DA applies.

Penalty for Violating Section 269ST: Anyone violating this section faces a penalty equal to the amount received (as per Section 271DA). However, if the person proves a valid reason for the breach, no penalty is imposed.

Transactions of ₹2 Lakh or more are allowed only through electronic clearing systems, bank transactions, account payee cheques, or demand drafts. This promotes the digital economy.

Exemptions to Section 269ST:

The section does not apply to the government, banking companies, post office savings banks, cooperative banks, or other notified parties.
Transactions covered by Section 269SS (related to loans) are exempt.

Income Tax Penalty Rules: A Comprehensive Guide

Income tax penalties are a crucial part of the taxation system that ensure compliance and deter tax evasion. Understanding these rules is essential for taxpayers to avoid legal consequences and ensure a smooth tax-paying experience. Here, we provide a comprehensive guide to income tax penalty rules in India.

Income tax penalty for late filing:
- Imposed for not filing income tax returns by the due date.
Underreporting of Income:
- Penalties for underreporting income or concealing assets.
Concealing Income or Providing Inaccurate Information:
- Penalties for providing false information during tax assessment.
Failure to Comply with Tax Notices:
- Penalties for ignoring or not responding to tax notices.
Not Maintaining Proper Records:
- Requirements to maintain accurate financial records under penalty.
Failure to Deduct or Deposit TDS:
- Penalties for not deducting or depositing Tax Deducted at Source (TDS).
Cash Transactions Above ₹2 Lakh:
- Prohibition and penalties for receiving ₹2 lakh or more in cash.
Penalties for Delayed Payment of Advance Tax:

Interest penalties for not paying advance tax as required.

In summary, cash transactions above ₹2 lakhs must be handled carefully to avoid penalties. This initiative aims to encourage citizens to use electronic or bank payment methods. Income tax laws are becoming stricter to curb unaccounted income. Stay compliant and embrace digital payments for significant transactions.