By Preeti Motiani | ECONOMICTIMES.COM | Jul 04, 2017, 03.20 PM
Going by an income tax department circular issued yesterday, it appears that you can repay your entire loan amount to any HFC (Housing finance company) or NBFC (Non-banking finance company) in cash provided each instalment is less than Rs 2 lakh. As per the new income tax rule introduced in the last budget, cash payments/receipts of or over Rs 2 lakh are illegal and will attract penalty.
This rule had created confusion as to whether the rule applied to single instalment repayment of loan or to the entire repayment amount. The finance ministry issued a circular dated July 3, 2017, clarifying that the prohibition of cash payment would only apply to repayment of a single loan instalment in cash and not to the aggregate amount.
Section 269ST was introduced in the last budget to discourage the use of large amounts of cash as a step towards controlling generation of black money.
Section 269ST prohibits any person to receive amount of Rs. 2 lakh and above in cash:
(i) In aggregate from a person in a day, or
(ii) In a single transaction, or
(iii) In respect of transactions relating to one event or occasion from a person
Though this gives clarity for determining the applicability of section 269ST, from an individual perspective, he/she has to maintain necessary supporting documents to substantiate any future request from the authorities seeking clarification on the source of cash says Amarpal Chadha, Tax Partner & India Mobility Leader, EY.
The government has also introduced penalty provisions in case of section 269ST is violated.
Section 271DA defines the penalty amount to be paid by the person who receives the amount in cash over the specified limit. The penalty amount as per the law shall be equal to the amount received in cash.
Income Tax department in its circular dated July 3, 2017 has given a clarification regarding the transactions that will fall under the purview of section 269ST in case repayment of loan is done using cash.
The circular states that receipt of repayment of loan by the Non-Banking Finance Companies (NBFC) and Housing Finance Companies (HFC) will fall under the purview of section 269ST clause (b) if the repayment of ‘one’ loan instalment is equal to or above Rs. 2 lakh. “All the instalments paid for a loan shall not be aggregated for the purposes of determining applicability of the provisions of section 269ST.” This means that the Rs 2 lakh limit will only be applied to a single loan instalment repayment in cash and not to the total of all the instalments.
The department has received the representations from NBFCs and HFCs seeking clarification regarding the applicability of section 269ST on the repayment of loan whether it will be on one instalment or on the whole loan amount.
The circular has clarified that the NBFC or HFC will end up violating Section 269ST only if they receive a single loan instalment in cash of or over Rs 2 lakh.