Black money free economy – The India choose Cashxit Route

Hello,

Each of us right now are passing through the one unexpected and radical economic measure taken in the form of demonetisation by the Indian Government .Perhaps this is the most surprising and biggest action taken by  any Indian Government against black money post independence.

Let’s have some interesting analysis!

Year: 1978: First Demonetisation of High value Bank notes post Independence

Objective:  Then (attach official gazette copy)

“WHEREAS the availability of high denomination bank notes facilitates the illicit transfer of money for financing transactions which are harmful to the national economy or which are for illegal purposes and it is therefore necessary in the public interest to demonetise high denomination bank notes;”

Year: 2016: Second Demonetisation of High value Bank notes

ObjectiveNow (attach official gazette copy)

Whereas, it has been found that fake currency notes of the specified bank notes have been largely in circulation and it has been found to be difficult to easily identify genuine bank notes from the fake ones and that the use of fake currency notes is causing adverse effect to the economy of the country;

Whereas, it has been found that high denomination bank notes are used for storage of unaccounted wealth as has been evident from the large cash recoveries made by law enforcement agencies;

Whereas, it has also been found that fake currency is being used for financing subversive activities such as drug trafficking and terrorism, causing damage to the economy and security of the country”

Perception Then

Perception Now

The Demonetisation & Income Tax Provisions

In the above context, this is my humble attempt to explain the Income tax angle against the different scenario under which cash has been currently deposited by the People across the Country.

Scenario-1: Deposits of Cash up to Rs.250000

Income Tax Perspective:

  • According to the Revenue Secretary, Dr. Hasmukh Adhia, the small businessmen, housewives, artisans, workers etc who have made cash deposits up to Rs.250000 will not be questioned by the Income tax department.
  • The Ministry of Finance has also carried out series of advertisements in newspapers assuring people that their hard earned money is safe and depositing of Rs 500 and Rs 1,000 notes of up to Rs 2.50 lakh in bank accounts will not be reported to the I. Tax department.

  • Cash deposit up to Rs.250000 may be treated at par with maximum exemption limit in Income tax Act however Cash deposits in the form of Savings should belong to the assessee only.
  • Threshold of Rs.250000 is for per person irrespective of number of bank accounts.
  • Cash Deposits in Female Savings A/c may said to be sourced from the accumulated savings out of withdrawals made for the household expenses.
  • Cash Deposits in Children’s Savings A/c may said to be sourced from the gifts received on their behalf at various occasions as per one`s customs and family traditions.
  • Cash deposit up to Rs.250000 may be treated at par with maximum exemption limit in Income tax Act however Cash deposits in the form of Savings should belong to the assessee only.
  • Threshold of Rs.250000 is for per person irrespective of number of bank accounts.
  • Cash Deposits in Female Savings A/c may said to be sourced from the accumulated savings out of withdrawals made for the household expenses.
  • Cash Deposits in Children’s Savings A/c may said to be sourced from the gifts received on their behalf at various occasions as per one`s customs and family traditions.

Scenario-2: Deposits of Cash for more than Rs.250000

Income Tax Perspective:

  • According to the Revenue Secretary, The Government would be getting reports of all cash deposited during 10th Nov to 30th Dec.2016 above threshold of Rs.2.5 lakh in each A/C.”
  • As per CBDT Notification dated 15/11/16 , Banks and Post Offices are required to report to the Income tax Department :

(1)  Cash deposit exceeding Rs.50000 during any one day

(2) Cash deposits in excess of Rs.2.5 lakh during 9th November to 30th December, 2016 in any account other than Current Account of a person.

(3) Cash deposits in excess of Rs.12.5 lakh during 9th November to 30th December, 2016 in any one or more current account of a person.

  • The Income Tax department would match the cash deposits with the Income tax returns filed and income declared for the F.Y 2016-17 and preceding three years. Your yearly income and withdrawals together with your other family members would also be scrutinised.
  • If you have a large cash deposits from unexplained sources and not shown as income in your Income tax return and if it is proved that you have suppressed the fact, misreported the income and failed to provide proper evidence then it is considered as Tax Evasion by you and Income tax department may impose penalty to the extent of 200% of the tax on such undisclosed income.
  • If cash deposits from unexplained sources will be declared and shown by you along with the normal income in the Income tax return and if applicable tax and interest have been paid (See Section 115BBE) then you may not be imposed with the Penalty of 200% of Tax u/s.270 (A) of the Income Tax.

Scenario-3: Buying / Holding Gold & Jewellery before or after Demonetisation.  

Income Tax Perspective:

  • According to the Income Tax Rule 114B, furnishing of PAN is mandatory in case of a purchase (Cash / Cheque) of bullions or jewellery exceeding Rs.2 lacs.
  • According to the Section 206C (1D) of I. Tax Act, TCS at the 1% is required to be collected by Seller if Cash purchase of bullion exceeds Rs.2 lacs or Jewellery exceeds Rs.5 lacs.
  • If Bullions or Jewellery have been bought (after demonetisation) through cash or cheque, one should ensure to comply with the said provisions to avoid any I. Tax investigations.
  • In case of value of Bullions or jewellery already held (bought before 31-3-2015) by you is of Rs.30 lakhs or more then you should ensure that the same have been shown in your Wealth Tax Return (may be filed up to 31-3-2017 if not filed for F.Y:2014-15)
  • As per Income tax guidelines possession of following quantity of Gold Jewellery and Ornaments are generally not to be questioned by the Income tax department.
  • 500 Gms. Per married lady,
  • 250 Gms. Per unmarried lady 75 Tola –Appx.
  • 100 Gms per male member of the family
  • [Reference: Instruction No. 1916 [F. No. 286/63/93-IT (INV. II)] DT. 11TH MAY, 1994]

According to the Revenue Secretary, severe action would be taken against those Jewellers who indulge in any unfair trade practice and fail to comply with the conditions of Income Tax Provisions.

Scenario-4: Deposit of Cash received as Gift in the Marriage held before Demonetisation date

Income Tax Perspective:

  • Section 56 of the Income Tax Act provides that “any sum of money received on the occasion of the marriage” is not considered as income and hence not taxable.
  • In such scenario, one should keep the record of cash gifts received on the occasion of marriage stating Nature of Occasion, date, name of relatives, Amount received, Envelopes in which cash gifts received etc.
  • In such scenario, Income tax department would also ask for the marriage expenses incurred in greater detail and hence it is advisable to keep and maintain record of each bills, cash payments, bank withdrawals, list of marriage invites, etc to substantiate your claim.  

Scenario-5: Deposit of Cash against sales made before demonetisation date

Income Tax Perspective:

  • In such scenario, Income Tax department would normally scrutinise your Nature of Business i.e.  Retail/wholesale , Average Monthly cash flow, cash reconciliation up to 8th November,2016,  Proof of deliveries, Vat Returns, Confirmation from the buyers etc to substantiate your claims.
  • One should ensure that condition of obtaining of Pan Number and collection of TCS in case of Cash receipts exceeding specified limit would also have been complied with.
  • Seller should additionally ensure that cash receipts against sales should have been complied with the provisions of Section 40A (3) & 40A (3A) by the Buyers also.    

Conclusion:

Under current situation each of us should support the initiative taken by our Prime Minister by not resorting to the unfair practices of Black & White and should pave the path of Poverty Free and Corruption Free India for the Coming Generations.

See the Fate of our beloved Notes after Demonetisation

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