Thursday, 10 November 2016

Deposits above Rs 2.5 lakh to face tax, penalty on mismatch

Having junked 86 per cent of total currency in circulation with the demonitisation decision, Government today sought to assuage anxious public saying banks and post offices would start giving out high denomination replacement notes from tomorrow even as it expanded the list of exempt public utilities.It also ordered banks to remain open full day on Saturday and Sunday to deal with the rush of people wanting to
deposit the defunct currency bills. Besides, many banks would work extra hours tomorrow and the day after. Besides, it expanded the list of areas where the withdrawn notes will be accepted till November 11 midnight. They include payments for metro rail tickets, highway and road toll, purchase of medicines on doctor prescription from Government and private pharmacies, LPG gas cylinders, railway catering and ASI monuments entry tickets.
A 72-hour relaxation for use of such notes was given yesterday for Government hospitals, railway ticketing, public transport, airline ticketing counters at airports, milk booths, crematoria/burial grounds and petrol pumps.
Banks and ATMs were shut today to remove old Rs 500/1000 notes and stock them with lower denomination and new hard-to- fake Rs 500 and Rs 2,000 currency notes. Banks will open tomorrow as RBI has sent truckloads of new notes throughout the country, while some ATMs will begin dispensing cash.
“Through RBI’s currency chest, adequate currency is (being) provided in all banks and post offices. But it would require 2-3 weeks for full adequate replacement. It would begin tomorrow morning,” Finance Minister Arun Jaitley told reporters here.
Withdrawal limitations – Rs 2,000 a day from ATM per card and Rs 10,000 through bank account on a day and Rs 20,000 in a week, will continue for some time, he said. “As and when more currency comes into banking system, there will be a rethink on those limitations.”
The Government, however, warned that cash deposits above Rs 2.5 lakh threshold under the 50-day window could attract tax plus a 200 per cent penalty in case of income mismatch.
“We would be getting reports of all cash deposited during the period of November 10 to December 30, 2016, above a threshold of Rs 2.5 lakh in every account.
“The (tax) department would do matching of this with income returns filed by the depositors. And suitable action may follow,” Revenue Secretary Hashmukh Adhia said tonight.
Any mismatch with income declared by the account holder will be treated as a case of tax evasion.
“This would be treated as a case of tax evasion and the tax amount plus a penalty of 200 per cent of the tax payable would be levied as per the Section 270(A) of the Income Tax Act,” he said.
The Government has allowed citizens to deposit in their bank accounts old currency of Rs 500 and Rs 1,000 denominations, which had been declared invalid in the nation’s biggest crackdown on blackmoney, corruption and counterfeit notes, between November 10 and December 30.
Adhia said small businessmen, housewives, artisans and workers who had some cash lying as their savings at home should not be worried about any tax department scrutiny.
“Such group of people… Need not worry about such small amount of deposits up to Rs 1.5 or 2 lakh since it would be below the taxable income. There will be no harassment by the Income Tax Department for such small deposits made,” he said.
On people resorting to buying of jewellery, he said persons buying jewellery has to provide the PAN number.
“We are issuing instructions to the field authorities to check with all the jewellers to ensure this requirement is not compromised.
“Action will be taken against those jewellers who fail to take PAN numbers from such buyers. When the cash deposits of the jewellers would be scrutinised against the sales made, whether they have taken the PAN number of the buyer or not will also be checked,” he added.
Officials said that while honest tax payers as well as housewives and farmers with genuine savings have nothing to worry if they deposit old currencies in their bank accounts and take out replacement ones, tax authorities would keep a close watch on high-value deposits made from illicit sources, black money or crime money.
Housewives, farmers and those whose annual income is within the tax exemption limit may not be hounded by tax authorities for depositing up to Rs 2.5 lakh of the now- defunct higher denomination currency notes in bank accounts.
“It should be clear that it is no immunity scheme. This (deposit) does not provide any relief from taxation. The law of land will apply (on source of fund),” he said. “If the money is legitimate which had been previously withdrawn from bank or earned legally and saved and had been disclosed, there is nothing to worry about”.
After withdrawing Rs 500 and Rs 1,000 notes from circulation, the Government allowed individuals to deposit the same in their bank accounts till December 30 and get smaller denomination ones or new Rs 500 and Rs 2,000 bank notes.
These deposits, however, will be scrutinised to catch tax evaders and black money holders.
But those falling within the income tax exemption bracket Rs 2.5 lakh need not worry regarding their cash deposits in banks except for suspicious cases, the official said.
In a surprise move, Prime Minister Narendra Modi last night announced demonetisation of Rs 1,000 and Rs 500 notes with effect from today to fight the menace of black money, fake currency, corruption and terror financing.
“Housewives can deposit up to Rs 2.5 lakh and pay no tax. There could be problem if one goes to deposit Rs 20 lakh,” the official said.
“Tax officials are not going to go after those who deposit Rs 2-3 lakh, but those who are going for high-value deposits, disclosures will be sought by the tax department.”
Listing three major positives of the Government’s move, the official said over medium to long term, it will help increase official size of the economy, improve tax collection and provide more resources to banks for onward lending.
“It will have an impact on inflation as well as tax buoyancy. Cash for lending will also increase. Mid-term both direct and indirect taxes will go up,” he said.
“Official size of the economy will increase dismissing fears of cash crunch. Instead of spending cash, you can spend through bank account, cheque, or electronic means… For smooth replacement, cash for cash will be rationed because if you allow an indefinite amount, there could be a run-on the banks.
According to a source, the entire replacement currency will be there over the next 3-4 weeks.
On the rationale of introducing new Rs 2,000 notes, the source said since 86 per cent of the high-value currency was lying idle, there was a need to replace the old with the new.
Terming the scrapping of Rs 500 and Rs 1000 notes as an “attack on terrorism”, Union Home Minister Rajnath Singh today said it has got Pakistan “worried”.
The Minister also said the demonetisation of higher currency notes is a step towards making the country an “economic super power”.
“Rs 500 and Rs 1000 notes give strength to those patronising terrorism… Prime Minister Narendra Modi has taken away this strength by banning these notes. Fake Indian currency notes are printed in Pakistan and circulated in the country to destroy its economy,” Rajnath said at BJP’s ‘Parivartan Yatra’ held in Ballia, UP today.
“Yesterday was a historic moment and with the ban on these notes, a surgical strike has been conducted on corruption. This can create inconvenience for a few days, but this is certainly going to help the country in becoming an economic superpower,” he said here and claimed that “poor are happy” with the decision.
Rajnath said Pakistan was “worried” about the development. (PTI)

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