Cash Transaction Penalties under Indian Tax Law : Clause 450 of the Income Tax Bill, 2025 Vs. Section 271D of the Income-tax Act, 1961

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....d contraventions of section 269SS. The legislative evolution from section 271D to clause 450 reflects the ongoing effort to modernize, rationalize, and align the penalty framework with contemporary financial and regulatory practices. The significance of these provisions is rooted in their role in curbing the circulation of unaccounted money and enforcing transparency in financial transactions. Both provisions aim to deter taxpayers from circumventing the formal banking channels, thereby facilitating the detection and prevention of tax evasion. The transition from section 271D to clause 450 is not merely a matter of legislative re-numbering; it is accompanied by subtle shifts in administrative processes and potentially in the scope and appli....

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....x compliance. Detailed Analysis of Clause 450 of the Income Tax Bill, 2025 Text of Clause 450 If a person takes or accepts any loan or deposit or specified sum in contravention of the provisions of section 185, the Assessing Officer may impose on him, a penalty equal to the amount of the loan or deposit or specified sum so taken or accepted. Key Elements of Clause 450 * Triggering Event: The penalty is attracted when a person "takes or accepts any loan or deposit or specified sum" in violation of section 185. The reference to section 185 is critical, as it defines the substantive prohibition-presumably analogous to section 269SS, which prohibits acceptance of loans or deposits above a prescribed limit otherwise than by account payee c....

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....0 does not explicitly incorporate such a safeguard. * Procedural Safeguards: The provision empowers the Assessing Officer to impose the penalty, but does not elaborate on the procedure, opportunity of being heard, or appeal mechanisms. These are likely to be provided elsewhere in the Bill or in the procedural rules. Comparative Analysis with Section 271D of the Income-tax Act, 1961 a. Substantive Parity Both Clause 450 and Section 271D are substantively identical in terms of the mischief they seek to address, the quantum of penalty, and the broad language employed. Both penalize the acceptance or taking of loans, deposits, or specified sums in contravention of the respective substantive provision (section 185 or section 269SS). b. Str....

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....of a "reasonable cause" exception in the new Bill would enhance legal certainty and fairness. * Limitation Period: Clarification regarding the limitation period for initiating penalty proceedings would prevent protracted litigation and uncertainty. * Standardization of Procedures: Issuance of administrative guidelines or circulars on the imposition of penalty could promote consistency and prevent arbitrary exercise of discretion. Textual Comparison Feature Section 271D of the Income-tax Act, 1961 Clause 450 of the Income Tax Bill, 2025 Triggering Event Contravention of section 269SS (acceptance of loan/deposit/specified sum otherwise than by prescribed modes) Contravention of section 185 (presumably similar to section 269SS....

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....sing ambiguities that have arisen under the old law. Practical Implications of the Transition For Taxpayers * Heightened Vigilance: Taxpayers must be vigilant in ensuring compliance with section 185 (or its equivalent), given the severe consequences of non-compliance. * Documentation: Proper documentation and evidence of mode of receipt become critical in defending against penalty proceedings. * Litigation Risk: The risk of litigation persists, especially in cases involving family transactions, emergencies, or technical breaches. For Tax Authorities * Increased Responsibility: Assessing Officers now bear the responsibility of imposing penalties, necessitating proper training and oversight to ensure consistency and fairness. * E....