The announcement made by PM Narendra Modi to demonetise Rs 500 and Rs 1,000 notes has led to panic in India. Everyone is rushing towards banks, ATM machines, post offices etc. to convert the demonetised notes. However, in view of the guidelines and practices of Income Tax Department to review the deposits exceeding certain amounts, you need to be careful to avoid certain mistakes to avoid your case falling under Income Tax Scrutiny
The taxman has all the rights to slap notices and demand 60% tax on all cash deposits made in banks since April this year. The recent amendments to the Income Tax Act as such do not specify any threshold for scrutiny on cash deposits. The absence of a threshold in the amendment is absolutely contrary to assurances given by the Prime Minister and the revenue secretary that no inquiry or investigations would be initiated on those depositing up to Rs 2.5 lakh.
Beware of these mistakes that you may make while depositing demonetised notes in your bank accounts and face IT scrutiny:-
- Deposit more than cash book: Business, especially the small business, do not maintain proper accounts. They actually hold more cash than their cash balance in the books of accounts. If you deposit more than what is shown under cash book, this might catch the eye of the taxman. Therefore, if you want to stay away from scrutiny then you must correct the books of accounts and try to reconcile the cash book with the actual cash you have in hand. After that you can easily deposit the sum into your bank account.
- Deposit in bulk: Depositing an amount more than Rs. 50,000/- at a time requires the depositor to mention PAN which would directly mean that this information is directly reported to the Income Tax department. This could be the worst step you may take under these circumstances that can nake you receive a scrutiny notice so try not to deposit such large amounts at a time in bank account. Deposit the money in installments. However, may not one thing that even the cash deposited in small installments also would be aggregated to ascertain the amount deposited
- Depositing unexplained cash: Many household people have, over the years, saved a lot of money in cash. Since this cash is earned by small business, small professionals, or any road side shops etc., it might not be under the tax slab resulting into no ITR or supporting evidence for that cash. The government had initially mentioned about a threshold of Rs 2.5 lakh which was not intended to be questioned; however, that cannot by itself be a blanket ‘exemption’ and has to be reasonable in the context of income and the drawings of the depositor. So in order to avoid trouble, prepare a file for it. Try to gather as much evidence as possible for your earnings. Even informal evidences also work because the department will understand your case and will deal with it accordingly. Further in any case, you can always consult a professional.
- Related Read- Beware of myth that deposits upto Rs 2.5 lakhs would not be questioned by Income Tax Department
- Revealing your privacy: People under panic often forget about the privacy issue and search for the safe advice. Consulting an expert in this regard who would be a better option to avoid getting a scrutiny notice, rather telling everybody about your privacy.
- Not offering income to tax: People are still looking for unsafe shelter and malafide practices to curb the impact of this ban. In case you have any unaccounted money then declare it. At such a pace of government reform, today or tomorrow, your unaccounted money will be held and punished.
- Depositing cash in jan dhan accounts: People are depositing their unaccounted cash in jan dhan accounts of poor people to convert the demonetised notes. The government is all set to take strict actions against this malafide practice. Some are suggesting that those accounts which had near nil movement for the last 12 months would be permitted to withdraw a maximum of 25% and the balance would go towards the Scheme.
- Investing in gold: Many people think that investing in gold is also an option but it may prove to be totally detrimental to their interest. This is because Jewelers are now covered under excise law, which means that they have to maintain records for input and output made during the year. Under new rules, tax collection at source is applicable on every purchase of more than Rs 5 lakhs. Hence, if you are buying gold worth more than Rs 5 lakhs then TDS would be collected and paid to the government of India. This would inform the government about the transaction and rest is the procedure.
No doubt, this step of PM Modi could turn out to be one of the most crucial steps in the history of Indian economy. It will certainly jeopardise the parallel economy in India. Hence, be a part of this historic event and do not let yourself in trouble of struggling with tax authorities just by keeping in mind, some small things.
At the same time, try to avoid some small mistakes to avoid your case being picked up for Scrutiny by Income Tax Department due to reckless deposit of cash in your account