Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Money / Personal-finance/  New income tax rules to curb unaccounted cash
BackBack

New income tax rules to curb unaccounted cash

CBDT has instructed banks and post offices to file a report by 31 January 2017, on high-value deposits made between 9 November and 30 December

Hemant Mishra/MintPremium
Hemant Mishra/Mint

In order to track the unaccounted money making its way into bank and post office accounts post demonetisation, the Central Board of Direct Taxes (CBDT) has amended certain income tax rules. Under Rule 114E of the Income-tax Rules, 1962, specified persons under section 285BA of the Income-tax Act, 1961, have to report high-value financial transactions. This has been modified.

Now, cash deposits in bank and post office accounts above a certain limit—between 9 November and 30 December 2016—will get reported to the income tax department. Let’s read more about issues like how and when banks and post offices will report to the income tax department and how to respond if the tax department seeks clarification regarding a possible mis-match between your tax return and the amount deposited in the accounts.

Reporting rules

Under section 285BA of the Act, “specified persons" are required to record and report high-value financial transactions of individuals. These specified persons include: banks, mutual funds, institutions issuing bonds, and registrars or sub-registrars. They have to file the Annual Information Report (AIR), containing details of high-value transactions, by 31 May of the following year.

The list of high-value transactions, for which AIRs have to be filed, is specified in rule 114E of the Income-tax Rules, 1962. For instance, a bank has to file an AIR when the aggregate cash deposits of all the savings bank accounts of a person exceed Rs10 lakh in a year.

However, considering the current round of demonetisation in the country, there have been changes in the rules pertaining to cash deposits in bank and post office accounts. “114E has been amended with effect from 15 November to the effect that ‘cash deposits during the period 9 November 2016 to 30 December 2016 aggregating to Rs2.5 lakh or more, in one or more accounts (other than a current account) of a person’ shall be reported by a bank and post office," said Amit Maheshwari, partner, Ashok Maheshwary & Associates LLP.

Besides that, reports related to deposit of cash during the mentioned period would be furnished by banks and post offices by 31 January 2017, instead of usual date to file AIR, which is May 2017.

Purpose of the new rules

The report will help the government collect information about high-value deposits made by taxpayers. This information will be cross-checked against the income declared and tax paid by the income tax assessee in her previous income tax returns. The aim is to check tax evasion and curb black money.

However, what if the person deposits more than Rs2.5 lakh, but in accounts of different banks and post offices? “It is still not clear as to how such the banks will check this," said Maheshwari. “Though the intent of this legislation seems to be getting details of deposits in all savings accounts of such a person, still, a particular bank and post office will furnish the details of deposits made with itself and may not know if the person has deposited any sum in another bank account," he added.

The government has also amended rules related to mentioning the permanent account number (PAN) while depositing cash, to plug this loophole. According to the amended rule, individuals have to furnish their PAN whenever their deposits exceed Rs50,000 in a day or Rs2.5 lakh in aggregate during the mentioned period. However, one can still get away without mentioning PAN if the amount deposited is less than Rs50,000. As the responsibility of filing the report does not lie with the individual depositor, she only provides the PAN if the bank asks for it. However, if PAN has been provided while depositing funds, it can be tracked by the department.

How to respond to a notice

As mentioned, the high-value deposits will get reported and may further get scrutinised by the income tax department. In case the department finds a mis-match between the income tax return filed by the individual, and the amount deposited, it may send a notice to the person seeking clarification. “As per information obtained from banks and post offices, tax authorities could initiate search proceedings or send notices asking for information regarding the nature and source of the deposits," said Neha Malhotra, executive director, Nangia & Co. You may be asked to be present or send your representative to give the clarifications. “The department issues a notice for scrutiny assessment under section 143 (2) of the Act—to be present on a certain date himself or through a professional—for verification of records and seeking clarifications and opportunity to present this case," said Maheshwari.

Further action will depend upon the documentation and clarification provided by the taxpayer. “They can levy tax along with interest and penalty on under-reported income, if it could be established that such income pertains to previous years (prior to financial year 2016-17) and was not reported by the depositor while filing the tax return," said Malhotra. “It’s best to keep the documentation substantiating the source of funds handy," said Malhotra.

Things to remember

You should keep track of any and every communication sent by the income tax department. Generally, such notices have a time limit before which they have to be responded to. Moreover, you need not panic when you receive a communication from the tax department. Read through it and take corrective measures, if needed. If you need more time to provide the clarification, request the assessing officer or the person concerned, for an adjournment. You can also seek help of experts, such as a chartered accountant or a tax consultant, if you are unable to resolve the matter on your own.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 23 Nov 2016, 04:56 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App