THE government’s decision to demonetise R500 and R1000 otes has caused a lot of concern and unrest among peoplec. Everyone is wondering how this move will affect them and whether the tax authorities would come knocking at their doors?
Those individuals who have legitimate money need not worry. The move by Prime Minister Narendra Modi will not cause any trouble or inconvenience to them in the medium or long term. This is a master stroke which would hugely benefit the Indian economy and the security concerns of the public .
The government has taken a number of steps to curb the menace of black money in the economy. As per section 69A of the Income Tax Act, unexplained money means any money, bullion, jewellery or other valuable article not recorded in the books of account and about which there is no explanation on the nature and source of acquisition. Money which has not been reported in the income tax returns and on which no income tax has been paid is black money.
However, not all cash is black money. For example, cash received by an individual whose income is below the taxable limit of R2.5 lakh or cash withdrawn/received which has been accounted for and considered in the books of accounts and whose source is explained will not tantamount to black money and individuals are free to deposit such cash in their bank account without any limit or fear.
There has been a lot of talk that penalty @ 200% will be levied on deposit of cash in excess of R2.5 lakh. This fear is unfound and misplaced. Tax authorities under no circumstances can levy penalty if taxpayers can prove that the cash deposited is not black money.
Further, the tax department will provide every taxpayer adequate opportunity to explain large cash deposits. In fact, they have introduced a new feature on the income tax portal. Taxpayers can log into their e-filing account and see a new icon for accounts with cash transactions. The taxpayer can explain cash deposits in all the bank accounts from among the six options, viz, 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 and transactions do not have a relation with this account.
Going forward, as far as possible, all expenses and receipts should be done through bank either electronically, i.e., using debit card, credit card, net banking or by issuing cheques. Cash withdrawals should be restricted to a minimum amount so as to meet day-to-day cash expenses.
The writer is partner, Nangia & Co. With inputs from Neetu Brahma, manager, Nangia & Co