Circular No. 27/2017

Clarification on cash sale of agricultural produce by cultivators/agriculturists

What this is

Circular No. 27/2017 was issued by the Central Board of Direct Taxes on 3 November 2017. Its subject is Clarification on cash sale of agricultural produce by cultivators/agriculturists.

This is a clarification. The Board is stating how it reads a provision. That reading binds the department; it does not bind a court, and where the section says otherwise the section wins.

What it does

Clarifies that a cash sale of agricultural produce by the cultivator to a trader for less than Rs. 2 lakh does three things: it causes no disallowance under section 40A(3) in the trader's hands, it attracts no prohibition under section 269ST in the cultivator's hands, and it does not require the cultivator to quote a permanent account number or furnish Form No. 60. The reasoning is that rule 6DD already excepts payments for purchase of agricultural produce made to the cultivator from section 40A(3), that section 269ST bites only at Rs. 2 lakh or more, and that rule 114B does not reach a sale of Rs. 2 lakh or less.

Why it was issued

Representations were received from stakeholders on how the income-tax provisions apply to cash sales of agricultural produce by cultivators to traders.

Who it reaches

Cultivators and agriculturists selling produce for cash
Traders and commission agents buying produce from cultivators
Mandi buyers dealing in cash across the Rs. 2 lakh line

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.40A	s.29, s.36
s.269ST	s.2, s.186, s.189

The instrument, as the Board published it

The department publishes this one only as a PDF, so the words below were read out of that PDF by machine. That reading can carry its own mistakes — a misread number, a broken line. Check the signed document before you rely on a figure in it.

F. No. 370149/213/2017 -TPL
Government of India
Ministry of Finance
Department of Revenue
(Central Board of Direct Taxes)
*****
Circular No. 27/2017
New Delhi, Dated 3rd November, 2017
Clarification on Cash sale of agricultural produce by cultivatorslagriculturist
Representations have been received from the stakeholders. regarding applicability of
income-tax provision to cash sale of agricultural produce by cultivators/agriculturists to traders.
2. In this context, it is stated that the provisions of section 40A (3) of the Income-tax Act,
1961 ('the Act') provides for the disallowances of expenditure exceeding Rs. 10000 made
otherwise than by an account payee cheque/draft or use of electronic clearing system through a
bank account. However, rule 6DD of the Income-tax Rules, 1962 ('IT Rules') carves out certain
exceptions from application of the provisions of section 40A (3) in some specific cases and
circumstances, which inter alia include payments made for purchase of agricultural produce to
the cultivators of such produce. Therefore, no disallowance under section 40A (3) of the Act
can be made if the trader makes cash purchases of agricultural produce from the cultivator.
3. Further, section 269ST, subject to certain cxceptions, prohibits receipt of Rs. 2 lakh or
more otherwise than by an account payee cheque/draft or by use of electronic clearing system
through a bank account from a person in a day or in respect of a single transaction or in respect
of transactions relating to an event or occasion from a person. Therefore, any cash sale of an
amount of Rs. 2 lakh or more by a cultivator of agricultural produce is prohibited under section
269ST of the Act.
4. Further also the provisions relating to quoting of PAN or furnishing of Form No.60
under rule 114B of the IT Rules do not apply to the sale transaction of Rs. 2 Lakh or less.
5. In view of the. above, it is clarified that cash sale of the agricultural produce by its
cultivator to the trader for an amount less than Rs 2 Lakh will not:-
a) result in any disallowance of expenditure under section 40A (3) of the Act in the case
of trader.
b) attract prohibition under section 269ST of the Act in the case of the cultivator; and
Page 1 of 2
c) require the cultivator to quote his PAN/ or furnish Form No.60.
(Dr. T.S. M pwal)
Under Secretary to the Government India
Copy to:-
1. PS to FM/ OSD to FM/ OSD to MoS(R).
2. PS to Secretary (Revenue).
3. The Chairperson, Members and all other officers in CBDT of the rank of Under
Secretary and above.
4. All Pro Chief Commissioners/ Pr. Director General of Income-tax - with a request to
circulate amongst all officers in their regions/ charges.
5. Pr. DGIT (Systems)/ Pr. DGIT (Vigilance)/ Pr. DGIT (Admn.)/ Pr. DG (NADT)/ Pro
DGIT (L&R).
6. CIT (M&TP), CBDT.
7. Web manager for posting on the departmental website.
Page 2 of 2

What to watch

The line is Rs. 2 lakh: a cash receipt of Rs. 2 lakh or more by the cultivator is prohibited by section 269ST, and the circular says so expressly.
Section 269ST is tested per person per day, per single transaction, and per event or occasion, so splitting one sale across a day does not save it.
The section 40A(3) relief for the trader comes from the rule 6DD exception for purchases from the cultivator — it does not travel to a purchase from a trader or an aggregator.
Section 40A(3) itself disallows cash expenditure above Rs. 10,000; the agricultural produce exception is the only reason it does not apply here.

Where you meet it

In a trader's assessment where cash purchases from farmers are proposed to be disallowed under section 40A(3), and in a penalty proceeding under section 271DA against a cultivator for a large cash receipt.

An example

Ours, not the Board’s: a worked case built from the rule the instrument sets, to show how it falls out.

A trader buys produce from a farmer for Rs. 1.8 lakh and pays cash. No disallowance follows in the trader's hands, the farmer faces no section 269ST prohibition, and no permanent account number or Form No. 60 is needed. Had the same sale been for Rs. 2.1 lakh in cash, the section 269ST prohibition would have applied to the farmer.

What it names

Forms it names. Form No. 60

Rules it names. Rule 114B, 6DD of the Income-tax Rules, 1962. The 1962 Rules were replaced by the Income-tax Rules, 2026, which renumbered nearly everything: a rule number quoted here almost never means the same rule today.

It mentions. Circular No. 27/2017

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Circular No. 10/2008 — Clarification Regarding the Meaning of the Expression 'Fish or Fish Products' Used in Sub-clause (iii ) of Clause (f) of 5 December 2008
Notification No. 98 — Income-tax (Eighth Amendment) Rules, 2008 - Insertion of rule 18DDA and Form No. 10CCBD 22 October 2008
Circular No. 3/2008 — Explanatory Notes to the Provisions of the Finance Act, 2007 12 March 2008
Circular No. 8/2006 — 8/2006 dated 06 10 2006 6 October 2006
Circular No. 4/2006 — Clarification Regarding the Meaning of the Expression "The Produce of Animal Husbandry’ Used in Sub-clause (ii) of Claus 29 March 2006
Notification No. 58 — Amendment of the Income-tax Rules under section 40A of the Income-tax Act, 1961 17 February 2005

← Circular No. 28/2017 · Circular No. 26/2017 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.