Cash Deposit Rs500 and Rs 1000 notes: Tax issues (Revised)

The Govt of India has announced demonetisation scheme for Rs 500 and Rs 1000 rupee notes from the mid night of 8th Nov 2016.There are long queues before the bank branches and ATMs. We have addressed apprehensions about the taxation issues in an earlier blog. Recently the Parliament has amended Income Tax Rules pertaining to deposit of cash in the accounts. The tax treatment will be as follows:

Deposited with disclosures in Tax return

1. Tax @30% plus surcharge @33% and penalty of @10% of the deposit amount which makes it almost 50% of the deposit(In the earlier voluntary disclosure which ended on 30th September 2016,the      total amount was 45%)

2. 25% of the deposit will be kept with the bank for a period of 4 years at nil rate of interest.

3. The balance 25% can be withdrawn by the depositor

 

Deposited without disclosures in Tax return

 If the amount is not declared in Tax return then the tax rate will be 60% with surcharge of 25% and penalty of 7.5% which makes it a total of 82.5%

Withdrawal in Jan Dhan accounts

The maximum withdrawal per month is Rs10,000/- in case of KYC compliant accounts and Rs. 5,000/- in case of non KYC compliant accounts.

The maximum withdrawal per month is Rs10,000/- in case of KYC compliant accounts and Rs. 5,000/- in case of non KYC compliant accounts.

 The other rules are as follows:

  1. You have time   till 30th December 2016 to deposit the same in banks (extended till 31 March 2017 with additional documentation)
  2. As soon as one deposits, one needs to have an explanation ready for the source of this cash. Note here the explanation needs to be ready, neither the banks nor the Income Tax will ask for it as of now. The explanation will be on case to case basis;
  3. (a) The cash may be entirely “white”, on which one has already paid tax i.e. this is cash which has been declared in his books of accounts or he has withdrawn this from the bank. or (b)The cash may be entirely “black”, so to speak, which means he has never paid any taxes on the same. Or (C) it may be combination of both.
  4. So when one deposits such “white” cash, he has no problems what so ever since he has already paid taxes on the same. He just has to collect evidence of the source and keep it ready.
  5. If the cash is “black” though, it becomes “white” as soon as he deposits it into the bank. Thus, now one will have to include this in his annual income and think of a source for it.
  6. Once he pays the taxes, comes the year end in March 2017. He collates all his financial data, and files an income tax return by July or September 2017 depending on his volume of business etc. Here, he should make sure that the money he deposited is shown in the returns.
  7. In case the cash deposit  (Rs500 and Rs1000 old currency notes) is made in the accounts before 30th December.

 

Last modified on Saturday, 11 March 2017 06:02

Prakash Praharaj

Shri Prakash Praharaj has a passion for excellence. He has been awarded two gold medals for securing top positions both in Graduation and Post Graduation in Commerce. He is an MBA with specialization in Finance and marketing. He has been awarded Diploma in Treasury, Investment and Risk Management besides CAIIB from the Indian Institute of Bankers. He is a Certified Financial Planner from the Financial Planning standards Board, India (FPSB), affiliated to FPSB, Denver, USA and Certified Personal Financial Adviser from NISM. He is also a SEBI registered Investment Adviser vide Reg. no. INA 000000045 dated 2nd August 2013.His book "Your Every day guide to Personal Finance and Insurance" has been published by CNBC TV 18 in August 2015.

2 comments

  • Subhra Kiddy

    posted by Subhra Kiddy

    Friday, 16 December 2016 06:47

    Please continue to post good articles

    Report
  • Monali Tripathy

    posted by Monali Tripathy

    Friday, 16 December 2016 06:46

    Please share your contact no!

    Report

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