Aiming to combat black money, counterfeit currency notes and corruption, the government demonetised R500 and R1000 notes. Quoting PAN has been made mandatory for cumulative cash deposit of R2,50,000 and above during November 11-December 30, 2016. All this has created a lot of inconvenience and chaos for people. But there is a clear distinction amongst those holding cash and those dealing in black money. The impact of demonetisation shall be widely different for both these categories.
The common man’s tax worries
Those holding cash have an opportunity to deposit the old notes or exchange up to R2,000 and withdraw legally tenderable currency. Anyone who has deposited any cash during the stipulated period of 50 days should maintain appropriate documentation supporting and evidencing the source of such cash. Those having cash transactions also need not worry if they are complying with indirect tax payment requirements and such cash is recorded in their books as business receipts and included in the income tax returns to be filed for the current year.
While filing income tax returns for assessment year 2017-18, i.e., current financial year 2016-17, one has to carefully include all sources of income, including the cash deposited owing to demonetisation if the same forms part of the total income of the current year. Those who have earned income from legitimate sources and have been declaring all the income in the preceding years need not worry. Those trading in cash terms need not worry, since their current bank account would reflect their receipts in cash and the same would be consistent with their past records.
Housewives, artisans, freelancers and the like are free to deposit cash savings in their saving bank accounts as long as they can substantiate that the source of their savings is tax paid money.
The black money hoarder
Those dealing with black money need to start thinking of ways of doing business the legitimate way. Traders buying and selling goods/providing services without paying VAT/service tax should obtain VAT/service tax registration and, in due course, obtain GST registration and start doing their business the right way, i.e., pay the due indirect taxes to the government.
Those arguing that not every business can be done through banking channels need to understand that cash is required only when one wants to buy goods and services without paying VAT/service tax. If one is willing to pay the due taxes to the government, there is no bar on doing business through banking channels. Those claiming that India is a cash economy and this move shall dampen economic growth are failing to understand that this step has been taken to contain only tax evaders and not the genuine businessmen.
The writer is executive director,
Nangia & Co.