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Business News/ Politics / Policy/  Cash deposits above Rs2.5 lakh to face tax, penalty on income mismatch

Cash deposits above Rs2.5 lakh to face tax, penalty on income mismatch

Cash deposits made within exemption limit may not draw income tax scrutiny

Prime Minister Narendra Modi announced on Tuesday night the demonetization of Rs1,000 and Rs500 notes to fight the menace of black money, fake currency, corruption and terror financing.Premium
Prime Minister Narendra Modi announced on Tuesday night the demonetization of Rs1,000 and Rs500 notes to fight the menace of black money, fake currency, corruption and terror financing.

New Delhi: A day after the government scrapped Rs500 and Rs1,000 bank notes, the government said on Wednesday that high-value transactions will come under the tax department’s scanner and that there will be no immunity for cash deposits made.

All cash deposits of more than Rs2.5 lakh made till 30 December in a bank account will be reported to the tax department by banks. It will then be matched with the depositor’s income tax returns and suitable action taken, revenue secretary Hasmukh Adhia said, adding that smaller deposits made by housewives, small businesses and artisans that fall below the taxable income threshold will not come under the department’s scrutiny.

In case of large cash deposits of more than Rs10 lakh that are not explained by the income declared in the income tax returns, it will be treated as tax evasion and the tax amount plus a penalty of 200% of the tax payable would be levied.

ALSO READ: Scrapping Rs500, Rs1,000 currency notes was in the works in secret for 6 months

Reacting to reports that people are buying jewellery using unaccounted funds, Adhia said the tax department had issued instructions to field officers to ensure jewellers are verifying the permanent account number (PAN) of the buyers.

“When the cash deposits of the jewellers would be scrutinized against the sales made, whether they have taken the PAN number of the buyer or not will also be checked," he said in a written statement.

Adhia tweeted that farmers should not be worried about making cash deposits in banks as their genuine income is not taxable.

However, the farmers’ income should not be disproportionately high compared to the yield expected from the land owned by him, he wrote.

Keen to minimize inconvenience caused to households, the government, along with the Reserve Bank of India, has charted out a plan to ensure that there is no fund crunch.

Automated teller machines will be frequently refilled and banks will be open on Saturday and Sunday. A format has been prepared for collection of information about depositors and CCTV cameras will be used to keep track of them. Banks have also appointed nodal officers to deal with situations as and when they arise.

People should be able to withdraw Rs500 and Rs2,000 notes from all ATMs latest by Friday, said finance secretary Ashok Lavasa.

The government has also expanded the list of uses of the phased out high-value notes in the next couple of days. People can use Rs500 and Rs1,000 notes for recharging metro rail tickets, toll plaza payments, pay for medicines purchased from government and private medical shops, cooking gas cylinders and for tickets to enter monuments run by the Archaeological Survey of Industries, the finance ministry said.

ALSO READ: How badly has demonetization of rupee hit the Indian markets?

On Tuesday, after announcing that Rs500 and Rs1,000 notes will cease to be legal tender from Wednesday, the government had permitted the use of these notes till 11 November in railway stations, government hospitals, government-run cooperative shops, air ticket counters, milk booths, petrol stations, burial grounds, international airports and for foreign tourists. The government estimated that high denomination notes constitute around 86% of the total notes in circulation.

In a press briefing on Wednesday, finance minister Arun Jaitley said the steps taken by the government “do not merely nudge the economy in the direction of cashless economy but gives a significant push in that direction."

Jaitley said that it was clear that a parallel black money economy was present in India, leading to tax evasion and tax non-compliance.

“The Prime Minister made up his mind sometime back that Rs500 and Rs1,000 notes should be considered as illegal tender," Jaitley said, adding that the move will help boost the economy and increase direct and indirect tax collections in the long run.

Countering claims made by former finance minister P. Chidambaram that the cost of replacement of the currency could be as high as Rs15,000-20,000 crore, Jaitley said, “These numbers are highly exaggerated." He added the final cost will be known only once the printing process is completed.

The government estimates it will take around three weeks for the currencies to be adequately replaced.

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Updated: 10 Nov 2016, 02:15 AM IST
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