Understand Income Tax Provision before depositing Rs 500 and 1000 note

Ban on High Denomination Currency and Income-tax Act

As the Government has declared that currency notes of Rs. 500 and Rs. 1,000 denominations will not be valid from midnight of November 8, 2016, citizens will have to surrender the old notes at any branch of a bank or post office.

Citizens will have a time limit of 50 days (till 30 December, 2016) to either replace the old notes with new ones or deposit the same into their bank or post office accounts.

The limit for exchanging the old notes with new ones is set at Rs. 4,000. However, there is no such limit for depositing the old notes into bank or post office account.In other words, a person can deposit the old notes into his bank or post office account without any limit.

Various provisions of Income-tax Act would play a vital role in achieving the objectives of this move to curb the black money as under:

  • Furnishing of PAN :

As per section 139A of the Income-tax Act, 1961 read with Rule 114B of the Income-tax Rules, 1962, PAN is mandatory if a person wants to deposit cash of more than Rs. 50,000 into his bank account during any one day.

Hence, a person who doesn’t have PAN won’t be able to deposit cash of more than Rs. 50,000 into his account.

  • Furnishing of information by Bank / Post office to Income-tax Department

As per section 285BA of the Income-tax Act, 1961, every bank or post office is required to furnish a statement of financial transaction or reportable account (commonly known as ‘Annual Information return’) to Income-tax department in respect of cash deposit made by a person aggregating to Rs. 10 lakh or more in a financial year, in his one or more accounts. The limit is Rs. 50 lakh in case of current account.

Hence, Banks or post offices pass information to income-tax department in respect of every person who deposit cash of more than Rs. 10 lakh in his accounts during a financial year.

Hence, it is quite possible that on basis of information received from banks or post offices, Income-tax department may furnish notices to persons depositing cash of more than Rs. 10 lakh to explain the source of such deposit.

  • Penalty for concealment or misreporting of income

As per section 271(1)(c) of the Income-tax Act, a taxpayers is penalized if he conceals or furnish inaccurate particulars of his income.The penalty under section 271(1)(c) ranges between 100% to 300% of the tax sought to be evaded.

Section 271(1)(c) was substituted by section 270A by Finance Act, 2016 which provides for the penalty in case of misreporting or under reporting of income. The penalty is 50% of the tax payable on under-reported income and 200% of the tax payable on misreported income. Hence, if a person fails to disclose the source of the amount deposited in bank or post office account, he can be penalized under section 271(1)(C) or Section 270A, as the case may be.

Source: taxmann.com

Other Points : Consequences of unaccounted cash deposit under income tax act

  • The Income-Tax (I-T) Department will, in all likelihood, keep a track of such banking transactions, especially those happening from November 10, 2016. In case the I-T Department has any query, individuals with a proper and valid reason to explain the transactions need not worry. Accounts that have witnessed huge cash deposits and are not in sync with previous banking transactions, will, however, attract the attention of the I-T Department.
  • Finance Minister Arun Jaitley has said that deposits of now-defunct old Rs 500 and Rs 1,000 currency notes in bank accounts will not enjoy any tax immunity and the land of law will apply on the source of such money
  • The transactions under the I-T lens already include cash deposits of Rs 10 lakh or more in a savings bank account and cash deposit of Rs. 50 Lakhs or more in any Current Bank Account. The sharing of data between the banks and the I-T Department will help the government in detecting any irregular banking operations.
  • The government has reportedly issued orders to both the I-T Department and the banks to keep a track of all monetary transactions involving cash of Rs 2 lakh and above.
  • If you have deposited unaccounted deposit of cash into a bank account and not filed income tax return, you have all possibility of getting notice u/s 142(1) of Income Tax Act 1961 requiring you to file income tax return within prescribed time. Further, the Assessing officer (A.O) would require you to produce your books of account, other documents and information. A.O has powers even to enquire about your personal belongings and can ask you to submit your personal books of accounts.
  • If you have filed the return, you might receive a scrutiny notice under section 143(2) of income tax act. You would be asked to submit evidence to substantiate the income declared in your ITR. For the financial year 2016-17 a notice under this section can be issued till 30.9.2018
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About CA Prakash Chartered Accountant Bangalore

CA Prakash is a practicing chartered accountant and partner in Bangalore -based CA Firm. For further information or query, please email it to team@simplifiedlaws.com

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