New Delhi: Taxpayers will have to explain large cash deposits made in their bank accounts and state whether their income-tax returns reflect these deposits, as per a new feature introduced on the tax filing website www.incometaxindiaefiling.gov.in.

Further, all bank accounts linked to an individual’s permanent account (PAN) number have been collated, indicating that the accounts are being monitored by the tax authorities.

The new feature assumes significance in light of this week’s demonetization of Rs500 and Rs1,000 notes. People have been given time until 30 December to deposit their existing cash in these denominations in their bank accounts. The tax department has clarified that cash deposits below Rs2.5 lakh will not come under the scanner, but all those above this amount will be correlated with their income-tax returns (ITR) and a penalty imposed in case of tax evasion.

The taxpayer logging into an e-filing account will see a new icon for accounts with cash transactions. The taxpayer will then have to explain cash deposits in all the bank accounts separately—choosing from among six options; transactions are considered to be in ITR; transactions are considered in ITR of another account holder; transactions are not considered for ITR; transactions are partly considered for ITR; transactions are not taxable or exempt (e.g. agricultural income) and transactions do not have a relation with this account.

In case a taxpayer declares that the large cash deposits are linked to farm income and are not liable to be taxed, the department may decide to further investigate the matter by comparing the deposit with the land holdings of the farmer and the corresponding yields. In case of a big mismatch, the farmer may be probed for passing off income from other sources as farm income, Mint reported on 10 July.

“By adding this feature, the income-tax department will be asking taxpayers who are making large cash deposits, to confirm whether this amount has been already included in income-tax returns or not," said Archit Gupta, founder and CEO of www.ClearTax.com.

The demonetization has led tax evaders to explore ways of circumventing rules such as buying gold from jewellers in cash without providing a PAN, backdated bills for high-value purchases, money launderers accepting Rs500 and Rs1,000 notes for a commission and foreign exchange conversions at a premium.

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