Limit of Rs. 2 lakh cash transaction – Is it applicable on withdrawal from bank?

[Anonymous]

Recently, the Government has made a law in Income Tax Act. Any cash transaction of Rs. 2 lakh or more in cash is completely banned and it is said that penalty for its violation will the equal to amount of cash transaction. I have read on a famous website (taxguru) that this ban on cash transaction of Rs. 2,00,000 or more also applies to withdrawal of cash from bank in a single day. Is it so? Does this ban apply to cash withdrawal from bank? If so, do we have to pay penalty of the amount withdrawn from bank, even if it is from our own account?

[Dr. Ashok Dhamija]

In the Finance Act, 2017, there is a provision to insert two new sections in the Income Tax Act, 1961, namely sections 269ST & 271DA. The purpose of introduction of these new sections in the IT Act is to place restriction on certain cash transactions.

It has been provided by these two new sections that no person (other than those specified in these provisions) shall receive an amount of Rs. 200,000 (two lakh rupees) or more,

(a) in aggregate from a person in a day;

(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 account payee bank draft or use of electronic clearing system through a bank account. This means cash payment of such amounts cannot be received.

Any contravention to the said provision shall attract penalty of a sum equal to the amount of such receipt. [Note: this restriction is on the person who receives such cash payment, and not on the person who pays the cash amount.]

However, the said restriction is not applicable to any receipt by Government, banking company, post office savings bank or co-operative bank.

Initially, when these sections were introduced in the Income Tax Act, there was a lot of confusion that even if you withdraw cash from bank of Rs. 2,00,000 (two lakh) or more in a single day, then also it is prohibited and you may have to pay a penalty equal to the cash amount so withdrawn. This confusion was due to the reason that newly introduced Section 269ST was very widely worded.

However, subsequently, by a Press Release issued on 5^th April 2017 by the Government of India, Ministry of Finance, Department of Revenue (Central Board of Direct Taxes), it has been clarified that it has been decided that the above restriction on cash transaction shall not apply to withdrawal of cash from a bank, cooperative bank or a post office savings bank. It was also mentioned in the said Press Release that necessary notification in this regard was being issued. This Notification is available at this link.

In view of this clarification issued by the Government, it should now be clear that the above prohibition or restriction of cash transactions of Rs. 2 lakh will NOT apply to withdrawal of cash from a bank.

Newly introduced sections banning cash transactions of and above Rs. 2 lakh are reproduced below:

“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.

271DA. Penalty for failure to comply with provisions of section 269ST.- (1) 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:

Provided that no penalty shall be imposable if such person proves that there were good and sufficient reasons for the contravention.

(2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner.

     

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Dr. Ashok Dhamija is a New Delhi based Supreme Court Advocate and author of law books. Read more about him by clicking here. List of his Forum Replies. List of his other articles. List of his Quora Answers. List of his YouTube Videos.

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