Modi govt steps up scrutiny of cash deposits in black money fight

PAN card required if aggregate cash deposits cross more than Rs2.5 lakh till 30 December


A customer gets an indelible ink mark on his finger at a bank branch in Kolkata on Wednesday. Photo: Indranil Bhoumik/Mint
A customer gets an indelible ink mark on his finger at a bank branch in Kolkata on Wednesday. Photo: Indranil Bhoumik/Mint

New Delhi: Even as the Narendra Modi government battles the opposition both inside and outside Parliament over demonetisation of high-value bank notes, it is stepping up scrutiny to prevent people from converting black money into legal tender.

The income-tax (I-T) department has made it mandatory to link the permanent account number (PAN) to cash deposits of a certain value and lowered the threshold for reporting of such transactions by banks. It has also introduced reporting requirements for cash deposits into current accounts.

Prime Minister Narendra Modi on 8 November said all existing Rs500 and Rs1,000 notes will cease to be legal tender from midnight in a crackdown on black money— untaxed and unaccounted-for income—and terror and drug financing using fake currency. The government set a 30 December deadline for people to deposit their old high-value notes in banks and post offices.

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To keep track of such deposits and to ensure that tax evaders do not use the poor to legalize their illicit wealth, the I-T department has notified fresh reporting requirements.

All cash deposits above Rs50,000 in a day and those that aggregate to more than Rs2.5 lakh during 9 November-30 December will be required to quote PAN.

This means that tax evaders cannot get away by making multiple deposits of less than Rs50,000 without providing their PAN—a common practice at present.

Also, banks and post offices will be required to report all deposits exceeding Rs2.5 lakh in the annual information return (AIR) sent to investigative agencies, as against the current ceiling of Rs10 lakh. These are part of the changes that have been notified by the I-T department after demonetisation.

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A new clause on deposits in current accounts has also been introduced, wherein cash deposits of more than Rs12.5 lakh will have to be reported by a bank.

Archit Gupta, founder and CEO of www.cleartax.com, a website that helps people file tax returns, said the move will help the tax department seek an explanation from depositors.

“Since AIR transactions get included in Form 26AS, by including cash deposits of the specified period the income-tax department has closed the loop on its massive exercise,” he said.

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Rakesh Nangia, managing partner at tax consultancy and advisory firm Nangia & Co., said the cumulative threshold of reporting deposits till Rs2.5 lakh is aimed at plugging an existing loophole.

“Cash hoarders could have misused the existing rules by depositing an amount less than Rs50,000 on various occasions without quoting their PAN and exposing themselves to tax scrutiny,” he said, adding that the changes proposed by the tax department also put the onus on banks to ensure that they do not let non-compliant taxpayers get away.

The government has taken a number of measures to ensure tax evaders do not go scot-free. From conducting surveys on jewellers and money launderers to using indelible ink to prevent the same people from lining up multiple times to exchange old currency, the government is looking to clamp down on tax evaders.

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