Section 271DA of the Income Tax Act, 1961

Introduction

Section 271DA of the Income Tax Act is a provision that was introduced with effect in 2017 by the Government of India to promote digital transactions and curb the circulation of black money. This section lays down the provisions for imposing a penalty on any person who receives a sum of INR 2 lakh or more in cash, in a single transaction, or in aggregate from a single person during a financial year. 

Provisions of Section 271DA 

Section 271DA of the Income Tax Act, 1961 lays down the provisions for imposing a penalty on any person who receives a sum of INR 2 lakhs or more in cash, in a single transaction, or in aggregate from a single person during a financial year. The following are the key provisions of Section 271DA: 

1. Penalty: The penalty for violating this section is equal to the amount received in cash. For instance, if a person receives INR 3 lakhs in cash, then the penalty levied would be INR 3 lakhs. 
2. Reasonable Explanation: If the person can provide a reasonable explanation for receiving such a payment in cash, then the penalty may be waived. However, the onus of proving the explanation lies on the person receiving the cash. 
3. Applicability: This penalty is applicable only to those transactions that are not in compliance with the provisions of the Income Tax Act. If a person receives a sum of INR 2 lakhs or more in cash in compliance with the provisions of the Income Tax Act, then no penalty will be imposed. 
4. Additional Penalties: Section 271DA also specifies that the penalty imposed under this section will be in addition to any other penalty that may be levied under any other provisions of the Income Tax Act. Therefore, a person who violates Section 271DA may be subject to multiple penalties. 
5. Imposition of Penalty: The penalty under Section 271DA will be imposed by the Joint Commissioner. 

The objective of Section 271DA 

The primary objective of Section 271DA of the Income Tax Act is to: 

• Promote digital transactions  
• Reduce the circulation of black money in the Indian economy.  
• Discourage the use of cash for large transactions  
• Encourage a more transparent payment mechanism 
• To easily keep track of transactions.  
• By imposing a penalty on those who receive INR 2 lakhs or more in cash, the provision seeks to incentivize individuals and businesses  
• Contribute to the economic growth. 
•  Increase tax compliance  
• Reduce tax evasion.  
• Strengthening the tax base. 

IMPACT OF SECTION 271DA 

Section 271DA of the Income Tax Act has had a significant impact on the Indian economy since its introduction. The following are some of the key impacts of this provision: 

1. Promotion of Digital Transactions: Section 271DA has encouraged the use of digital payment methods by imposing a penalty on those who receive cash payments of INR 2 lakhs or more. This has led to an increase in the adoption of digital payment methods. This is so because they are more transparent and secure compared to cash transactions. 

1. Reduction in Black Money Circulation: By imposing penalties on those who receive cash payments of INR 2 lakhs or more, Section 271DA has helped reduce the circulation of black money in the Indian economy. The provision has made it more difficult for individuals and businesses to evade taxes and engage in illicit activities. 

1. Increased tax compliances: The penalty imposed under Section 271DA has encouraged individuals and businesses to comply with the provisions of the Income Tax Act and report their income accurately. This has helped to increase tax compliance and strengthen the tax base in the Indian economy. 

1.  Impact on Small Businesses: Section 271DA has had a mixed impact on small businesses. While the provision has encouraged the adoption of digital payment methods, it has also increased compliance costs for small businesses. Consequently, they may find it difficult to comply with the requirements of the provision. 

Landmark Judgement 

1. Sujata Farms Pvt. Ltd vs. ACIT: In this case, the taxpayer received a sum of INR 21 lakhs in cash in violation of Section 269ST of the Income Tax Act. The Assessing Officer imposed a penalty under Section 271DA, which was upheld by the Commissioner of Income Tax (Appeals). However, the Income Tax Appellate Tribunal (ITAT) ruled in favor of the taxpayer. It stated that the penalty under Section 271DA could not be imposed as the transaction was not in violation of Section 269ST. 

Conclusion 

Section 271DA of the Income Tax Act is an important provision that has been introduced to promote digital payments. It also helps to curb the circulation of black money. Anyone who receives a sum of INR 2 lakhs or more in cash should be aware of the provisions of this section. Furthermore, they should ensure that they comply with the provisions of the Income Tax Act. 

Ensure tax compliance to avoid penalties. Contact us today.

This article was supported and created through efforts of Ms. Rashi Khandelwal, as a part of her legal internship at Sorting Tax.