Handling Your Tax Queries Post Demonetisation

I am an individual engaged in a small business. The Government has demonetised Rs.500 and Rs.1000 currency notes on 8/11/2016. I am having notes worth Rs.5,00,000. As per my Balance Sheet as on 31/3/2016 I was having cash in hand of Rs.6,00,000. If I deposit old notes in my bank account, will any tax liability arise in my hands ?

 The Government has made it very clear that all the legitimate old notes of Rs.500 and Rs.1000 if deposited in the bank and the same represent cash in hand as on 8/11/2016, the source of the deposit stands explained. Neither income tax, nor penalty would be levied on the said deposit if it is out of cash in hand as per your books of accounts. I am a housewife and 80 year old. I have saved almost Rs.4,00,000 over a period of many years. With demonetisation of Rs.500 and Rs.1000 currency notes, I have no option but to deposit in the bank. Will the Income Tax Department treat the entire Rs.4,00,000 as income and ask me to pay taxes thereon with penalty ?

 Since you are a housewife and a super senior citizen, you need not worry about deposit of Rs.4,00,000 as it would be below the taxable limit. In my opinion, there will be no harassment by the Income Tax Department for deposit made. You can always explain the source of Rs.4,00,000 as out of savings over a period of many years. Housewives can even get exemption for higher cash deposit if it is saving out of pocket money given to them by their husband for their expenses, and if you establish that your husband is a regular income tax returns’ filer and disclose sufficient income and have made sufficient cash withdrawal. What will be the tax implications on deposit of old notes in excess of Rs.2,50,000 ? Whether the entire deposit of old notes can be offered to tax in the Return of assessment year 2017-18 ? Whether the Assessing Officer will levy penalty upto 200% of tax amount under section 270A of the Income Tax Act ? 

 Any deposit of cash in your bank account requires to be explained i.e whether it is income or it is out of cash in hand. If one can establish that there is sufficient cash in hand as on 8/11/2016, the entire deposit of old notes in excess of Rs.2,50,000 cannot be subject to income tax liability. If the entire deposit of old notes represents income, and if the source is explained with documentary evidence, then the same could be taxed as per the rate applicable under Income Tax Act. But if the person is depositing old notes in large numbers in his bank account and does not have satisfactory explanation about the source of such deposit, then it is advisable to declare such deposit as income under the head “Income from Other Sources” and pay income tax at 30%, plus applicable surcharge and education cess. At present the Assessing Officer has no option but to accept the amount of deposit of old notes as income from other sources, and complete the assessment. No penalty under section 270A can be levied since there is no under-reporting or mis-reporting of any income. A careful analysis of Section 270A, clearly reveals that no penalty can be levied if the old high denomination notes are deposited by a person in his bank account between 8/11/2016 to 30/12/2016 and is offered for tax as Income from Other Sources for assessment year 2017-18. However, it is advisable for him to pay advance tax in two installments on 15/12/2016 (75%) and 15/03/2017 (25%) with interest due under section 234C of the Income Tax Act.

(If you have any queries related to your investment and taxation, feel free to write to him on editorial@dsij.in. You can read his explanations and analysis on the issues exclusively on this column of your favourite magazine.)