The government has allowed citizens to deposit in their bank accounts old currency of Rs 500 and Rs 1,000 denominations, which had been declared invalid in the nation’s biggest crackdown on black money, corruption and counterfeit notes, between November 10 and December 30. But the government warned that cash deposits above Rs 2.5 lakh threshold under the 50-day window could attract tax plus a 200 per cent penalty in case of income mismatch.

Hasmukh Adhia: Financial Services Secretary, Ministry of Finance of Government of India

Demonetization of the Rs 500 and Rs 1000 notes is a massive blow for those who have unaccounted money as they will face various penalties and prosecution proceedings under the Income Tax Act. Any mismatch with income declared by the account holder will be treated as a case of tax evasion. “The tax department would do matching of this with income returns filed by the depositors and suitable action may follow. We would be getting reports of all cash deposited during the period of November 10 to December 30, 2016, above a threshold of Rs 2.5 lakh in every account,” said Revenue Secretary Hashmukh Adhia .”This would be treated as a case of tax evasion and the tax amount plus a penalty of 200 per cent of the tax payable would be levied as per the Section 270(A) of the Income Tax Act,” he said.  

No worry for common man

According to the Mr. Adhia, small businessmen, housewives, artisans and workers who had some cash lying as their savings at home should not be worried about any tax department scrutiny. Such group of people with small amount of deposits up to Rs 1.5 or 2 lakh need not panic since it would be below the taxable income. There will be no harassment by the Income Tax Department for such small deposits made. People have to provide the PAN number for buying jewellery and strict instructions are issued to field authorities to ensure that this requirement is not compromised by the jewelers.

I-T department on high alert

I-T department today alerted its country wide investigation units to keep vigil on the suspicious movement of huge cash and bullion in the wake of demonetization of the Rs 500 and Rs 1000 currency notes by the government. Apart from this Central Board of Direct Taxes (CBDT) has directed all I-T probe-wings to be vigilant across the country and coordinate with the police and other agencies like enforcement directorate (ED) to monitor activities of hawala dealers and other traders/entities dealing with big cash and jewellery. There are reports of a heavy sale in bullion market in some western states, which the I-T department is working on to see if they are regular transactions or distress sales. Any instance of tax evasion and black money would be dealt with strictly, especially after two opportunities of declaration of income had been provided.

Consequences for people depositing unaccounted money:

Black money refers to the sum that you own which is unaccounted i.e. which you have not declared to the income tax department as having earned or received. In simple words, the amount on which tax was payable to the government as per the income tax laws, but, the sum was hidden or not disclosed to the department in order to evade the tax payment.

CASE-I: Someone who has never filed a tax return but deposits unaccounted money .

A case study, in which a person has unaccounted money (Black money) with him, and he has not filed any Income Tax Return (ITR) in earlier years. And this man has not received any notice from the Income tax department and has been successful in concealing his income so far. The possible consequences he might have to face as per the provisions of current Income tax laws if he is found to have deposited unaccounted money are as follows:

new-500-1000-noteLaunch of new currency notes and ban on old notes of Rs 500 and Rs 1000 will force the assesse to get his cash exchanged or deposit it in banks. While depositing the unaccounted cash into his bank account or exchanging he will have to submit his PAN and other details to the banking officials. This would make the likelihood of his case being caught by the Income tax Department very high As a result; he would be likely to get notices from the income tax department asking him the source of this amount deposited in the bank.

Notice under section 142(1):

This notice would require him to furnish his ITR within the time period allowed in the notice which is normally 15 days. Further the Assessing officer (A.O) would require him to produce his books of account, other documents and information. You might be astonished but here the A.O has powers even to enquire about your personal belongings and can ask you to submit your personal books of accounts. This notice can ask for information relating to the 3 years immediately preceding the financial year for which assessment is to be made.

Generally this notice would come along with a notice under section 144, 148 or 153A.