Tax rules relating to cash deposits_ Why tax radar may detect your cash deposits after Nov 8 u s anti money laundering laws

When you deposit cash in your bank, make sure you don’t get into the radar of the tax authorities. Last week, the government announced a new rule to prevent people from depositing large amounts of cash in their bank without mentioning the PAN.

Till then, you could deposit up to rs 50,000 in cash per transaction without giving the PAN. But it was noticed that a lot of people were depositing less than the threshold limit of rs 50,000 per day to escape the PAN provision. The rule has now been changed for cash deposits made between 9 november and 30 december. If the combined amount deposited in an account exceeds rs 2.5 lakh, the depositor will have to mention his PAN.

This clarifies the misconception that one can deposit cash in tranches of less than rs 50,000 and escape mentioning the PAN.

Experts say this is a critical step to prevent tax leakages after the demonetisation.U s anti money laundering laws “if you roll out such a massive demonetisation and don’t fix all the leaky faucets, the whole purpose will be defeated,” says archit gupta, founder and CEO, cleartax.Com.

The rule applies to all bank accounts of the individual, though it is not clear how banks will be able to capture information of cash deposited in other bank accounts. But tax professionals say one should not count on it. “one can escape getting noticed because banks don’t talk to each other right now. But if the database of bank accounts is unified, a lot of people with multiple bank accounts will come in the tax radar,” says delhi-based chartered accountant minal agarwal. The central board of direct taxes has also made changes in the annual information return ( AIR) rules.

Till now, banks and post office branches were supposed to report to the tax department if an individual made cash deposits of rs 10 lakh in a year.U s anti money laundering laws during the period 9 november to 30 december, this limit has been lowered to rs 2.5 lakh. If the cash deposits exceed this limit, the bank or post office will automatically report it to the tax department. “cash deposits of over rs 2.5 lakh will reflect in your form 26AS and you will be asked to explain the source of the cash,” says gupta.

Also read: all about demonetisation timeline

For current accounts, the threshold limit for cash deposits between 9 november and 30 december will be rs 12.5 lakh. Meanwhile, salaried employees, housewives and even low-income workers are being approached by agents with offers of commissions if they deposit cash in their bank accounts. The commission ranges from 10% to 30%. The bigger the sum, the higher is the commission. If you put rs 2 lakh in your bank account, you keep 30% and give back rs 1.4 lakh. But the government has cautioned that people who misuse their bank accounts like this can be prosecuted for aiding the laundering of black money.U s anti money laundering laws

30% tax on income or 200% penalty

Tax officials in quandary over how to slap penalty on current year’s income

The tax department is in a fix over the tax payable on cash deposits and undeclared income. Though many officials and political leaders have warned of a 200% penalty on undeclared wealth, some tax professionals say that money declared as income for the current year cannot attract any fine. “anybody depositing their year’s income in the bank cannot be taxed more than 30% plus cess and surcharge as applicable,” says a chartered accountant.

Finance ministry officials also say the income declared for the current year has to be within reasonable limits. Someone who reported an income of rs 5-6 lakh last year cannot suddenly show an income of rs 50-60 lakh this year. Responding to the debate in the rajya sabha last week, finance minister arun jaitley said a sudden jump in income in the current year will be scrutinised.U s anti money laundering laws if cash deposits are taxed at 30%, people who had declared assets under the income disclosure scheme (IDS) and paid 45% tax will feel disadvantaged.

According to a newsreport, there is a proposal to hike the tax rate to 50-60% so that it is higher than what was payable under the IDS. The government could change the tax rate for cash deposits when the window for changing notes closes on 30 december. Importantly, this higher tax will only apply to cash deposits of the withdrawn rs 500-1,000 notes.

Also read: how to check if your rs 2,000 note is real or fake

When you deposit cash in your bank, make sure you don’t get into the radar of the tax authorities. Last week, the government announced a new rule to prevent people from depositing large amounts of cash in their bank without mentioning the PAN.

Till then, you could deposit up to rs 50,000 in cash per transaction without giving the PAN.U s anti money laundering laws but it was noticed that a lot of people were depositing less than the threshold limit of rs 50,000 per day to escape the PAN provision. The rule has now been changed for cash deposits made between 9 november and 30 december. If the combined amount deposited in an account exceeds rs 2.5 lakh, the depositor will have to mention his PAN.

This clarifies the misconception that one can deposit cash in tranches of less than rs 50,000 and escape mentioning the PAN. Experts say this is a critical step to prevent tax leakages after the demonetisation. “if you roll out such a massive demonetisation and don’t fix all the leaky faucets, the whole purpose will be defeated,” says archit gupta, founder and CEO, cleartax.Com.

The rule applies to all bank accounts of the individual, though it is not clear how banks will be able to capture information of cash deposited in other bank accounts.U s anti money laundering laws but tax professionals say one should not count on it. “one can escape getting noticed because banks don’t talk to each other right now. But if the database of bank accounts is unified, a lot of people with multiple bank accounts will come in the tax radar,” says delhi-based chartered accountant minal agarwal. The central board of direct taxes has also made changes in the annual information return ( AIR) rules.

Till now, banks and post office branches were supposed to report to the tax department if an individual made cash deposits of rs 10 lakh in a year. During the period 9 november to 30 december, this limit has been lowered to rs 2.5 lakh. If the cash deposits exceed this limit, the bank or post office will automatically report it to the tax department. “cash deposits of over rs 2.5 lakh will reflect in your form 26AS and you will be asked to explain the source of the cash,” says gupta.U s anti money laundering laws

Also read: all about demonetisation timeline

For current accounts, the threshold limit for cash deposits between 9 november and 30 december will be rs 12.5 lakh. Meanwhile, salaried employees, housewives and even low-income workers are being approached by agents with offers of commissions if they deposit cash in their bank accounts. The commission ranges from 10% to 30%. The bigger the sum, the higher is the commission. If you put rs 2 lakh in your bank account, you keep 30% and give back rs 1.4 lakh. But the government has cautioned that people who misuse their bank accounts like this can be prosecuted for aiding the laundering of black money.

30% tax on income or 200% penalty

Tax officials in quandary over how to slap penalty on current year’s income

The tax department is in a fix over the tax payable on cash deposits and undeclared income. Though many officials and political leaders have warned of a 200% penalty on undeclared wealth, some tax professionals say that money declared as income for the current year cannot attract any fine.U s anti money laundering laws “anybody depositing their year’s income in the bank cannot be taxed more than 30% plus cess and surcharge as applicable,” says a chartered accountant.

Finance ministry officials also say the income declared for the current year has to be within reasonable limits. Someone who reported an income of rs 5-6 lakh last year cannot suddenly show an income of rs 50-60 lakh this year. Responding to the debate in the rajya sabha last week, finance minister arun jaitley said a sudden jump in income in the current year will be scrutinised. If cash deposits are taxed at 30%, people who had declared assets under the income disclosure scheme (IDS) and paid 45% tax will feel disadvantaged.

According to a newsreport, there is a proposal to hike the tax rate to 50-60% so that it is higher than what was payable under the IDS. The government could change the tax rate for cash deposits when the window for changing notes closes on 30 december.U s anti money laundering laws importantly, this higher tax will only apply to cash deposits of the withdrawn rs 500-1,000 notes.

Also read: how to check if your rs 2,000 note is real or fake