As part of the Income Tax Department’s Operation Clean Money, as many as 18 lakh taxpayers had been asked to explain large deposits made by them in the weeks after demonetisation. Taxpayers were alerted through SMS and emails, and were asked to furnish details by February 15.
However, if you have been lucky enough not to get alerts from the I-T Department this time despite making large deposits, then there is still reason to worry. For, according to sources, the I-T Dept is likely to come out with many more such lists in the future also.
Tax experts say that post demonetization, there is a lot of data available with the revenue authorities. Initial data analytics applied by the revenue authorities has revealed certain discrepancies in respect of income tax returns filed and the cash deposits made by the individuals, companies etc. Accordingly, the government has asked for information in respect of the cash deposits made.
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Keeping in view the information submitted or not submitted by the tax payers in the income-tax portal, the tax authorities will take a view whether a particular case needs a detailed examination. If the conclusion is that it requires detailed examination, then a scrutiny notice will be sent by the tax authorities.
Afterwards, detailed information regarding income, savings, cash deposits, various bank accounts etc. would have to be furnished. Tax authorities would determine the genuineness and authenticity of such information and accordingly decide the next course of action.
“Based on the response furnished or not furnished by the tax payers, the revenue authorities will decide whether a detailed examination is required or not in a particular case. In situations where there is a clear mismatch between income tax returns furnished, PAN and the cash deposits made, it is likely that tax authorities would seek further information and ask the tax payers to substantiate their cash deposits vis-à-vis their disclosed income,” says Vikas Vasal, Partner & National Leader–Tax, Grant Thornton India LLP.
Genuine tax payers like you, however, need not worry if the transactions carried out by you post demonetisation don’t seem out of line compared to your profile or if you can prove that you have already paid tax on that amount – although it can be difficult in some cases.
Tax experts say that you can still furnish your tax returns / other information – within the prescribed time limit – to substantiate your cash deposits.
However, if you are unable to do that, then you should be prepared to pay penalty as per tax laws.
For the benefit of taxpayers, we are giving here some details of Operation Clean Money / Swachh Dhan Abhiyan Initiative and what they should do in case they have already got a tax notice or get one in the future:
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Operation Clean Money / Swachh Dhan Abhiyan Initiative:
What does this basically mean?
The Income Tax Department (ITD) had initiated ‘Operation Clean Money’ on 31 January 2017 as a measure to assess the cash deposits during the period post demonetization. The initial stage of this operation includes the e-verification of large cash deposits made during 9 November to 30 December 2016. As per the press release, emails and SMS were sent to 18 lakh taxpayers for submitting online response on the e-filing portal based on data analytics, where cash transactions did not match the tax profile. The taxpayers were required to reply within 10 working days from receipt of email. This exercise has identified that around 4.84 lakh taxpayers have not yet registered with the e-filing portal. SMS has been sent on the mobile numbers of these unregistered persons. ITD is keeping a vigil on the Permanent Account Number (PAN) holders who have still not registered on the e-filing portal or who have not yet submitted their online response. In order to facilitate online responses, the last date for their submission had been extended up to 15th February, 2017 vide circular dated 13 February 2017.
What is the taxpayer required to do?
If a taxpayer has received such an email/SMS from ITD for explanation of cash deposited during the above mentioned period, then “such taxpayer is required to login to his income tax account on the e–filing portal and submit his online explanation under ‘cash transactions 2016’ tab displaying on his dashboard. If any taxpayer is not yet registered himself on the e-filing portal, then such taxpayers are advised to register themselves at the e-filing portal (http://incometaxindiaefiling.gov.in.) and submit online explanation,” says Parizad Sirwalla, Partner and Head of Global Mobility Services, KPMG in India.
What questions/response the taxpayer can choose?
Once the taxpayer is registered and logged in in his income tax account, he can submit his response/explanation of the cash deposited during the above mentioned period from a host of options available on the e-filing portal.
* Where the taxpayer feels that the bank account and/or cash deposited does not belong to him, then the taxpayer can respond by saying that the cash deposited does not relate to him, cash was not deposited by the taxpayer and he has no idea who deposited cash in his bank account or it belongs to either his spouse/dependent person/relative etc. The taxpayer can even disagree with the amount reflecting on the portal and mention the correct amount deposited.
* If the taxpayer is in agreement with the amount of cash deposited, the tax payer is required to explain the source/category of the cash deposited which can be assigned to various categories mentioned on the portal. A few examples for the same being:
· Cash withdrawn out of bank account;
· Cash received from identifiable persons (with PAN or without PAN);
· Cash received from un-identifiable persons; and
· Cash out of receipts exempt from tax and Cash out of earlier income or savings etc.
“The taxpayer can also mention his comments in remark column to provide more information. One may refer the detailed Frequently Asked Question (FAQs) which has been issued to assist the taxpayers in submitting their response. Once the response is submitted by the taxpayer, the same can even modify and re-submit his response,” informs Sirwalla.
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Further course of action?
Once the taxpayer has submitted his response on the portal, as per the above FAQs data analytics will be used to select cases for verification, based on approved risk criteria. As per the press release, the explanation of cash deposit submitted by the taxpayer is being analyzed in the context of nature of business and business profile in the earlier returns of the taxpayer. In case explanation of source of cash is found justified, the verification will be closed without any need to visit Income Tax Office. The verification will also be closed if the cash deposit is declared under Pradhan Mantri Garib Kalyan Yojna (PMGKY) which is open till 31 March 2017. Once, selected for verification the taxpayer may need to provide additional information as displayed on the taxpayer’s filing portal and a communication will be sent to his e-mail id, as provided on e-filing portal.