Transaction between Partners & firm vis a vis Section 269ST

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Transaction between Partners & firm vis a vis Section 269ST

With a target to curb the black money circulation in the Indian economy, Finance Act 2017 has introduced Section 269ST in the Income Tax Act-1961.

Central Board of Direct Taxes (CBDT) has also brought in the changes to the Tax Audit Report Format to assure proper compliance of this Section.

Section 269ST reads as under:

269ST. 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 Section uses the words “NO PERSON shall RECEIVE” with the exceptions being Government and any banking company. It means any to every person who receives the amount above the specified limit shall be liable under this clause. For example, if the amount above the limit is received by Individual, HUF, Company, AOP, Firm, Partner etc. it shall be chargeable under the clause.

Now, whether the cash transaction between the firm and the partners will be within the net of section 269ST is the question by many taxpayers.

Going by the simple interpretation & wording of section 269ST if a Partner withdraws amount in cash of RS. 2,00,000/- from the partnership Firm on account the penalty shall be levied on Partner.

There are similar kinds of transactions which can be done between the Firm and the partners:


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