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Arjuna (Fictional Character): Krishna, Rs.500 and Rs.1000 notes have ceased to be a valid tender for legal transactions from midnight of 8th November 2016. This has resulted in a huge impact on cash transactions. It’s true that pay tax and relax.

Krishna (Fictional Character): Arjuna, this is a decision that will make the financial position of the country better. The aim behind bringing such change is to tackle the problems of differences between rich and poor, corruption and increase in circulation of fake notes. We will be able to see its impact in coming few years on GDP growth, reduction in black money transactions, corruption, value of dollar, value of immovable property, rate of gold and silver, etc. But while exchanging notes, people should consider the provisions of income tax act relating to cash transactions. Otherwise, they will have to face the income tax authorities in coming days and in the run to earn some money, one will have to lose its double. The one who pays tax need not get afraid.

Arjuna (Fictional Character): Krishna, what is the limit for depositing cash in banks for a person not filing income tax returns?

Krishna (Fictional Character): Arjuna, the basic exemption limit for levy of income tax is Rs.2,50,000/-. A person may deposit a maximum of Rs.200,000/- in bank if he is not filing income tax return or his income is less than according to it. It is being said that no inquiry will be conducted in such case. If PAN is not available, then not more than Rs.50,000/- can be deposited in bank as per RBI circulars.

Arjuna (Fictional Character): Krishna, as per income tax act, what should a farmer do to deposit cash in bank and what is its limit?

Krishna (Fictional Character): Arjuna, a farmer needs to compare its land holding, check crop sown and its produce and then only deposit money. 7/12, Farm sale receipts, etc should be maintained for it. Farmers should deposit the amount arrived after deducting expenses from the agricultural income earned from sale of agro products after 8th November. Though no income tax is levied on agriculture, farmers should properly calculate the income earned from agricultural produce. Hence there is no limit prescribed for them, it’s on case to case basis as per agri-income of each farmer.

Arjuna (Fictional Character): Krishna, what should a salaried person do?

Krishna (Fictional Character): Arjuna, a salaried person should deposit in bank the amount saved from salary income after meeting the household expenses. No limit is there to deposit cash if it’s from taxable salary and its saving with relevant proof like salary slip, bank pass book, etc. Cash deposited if any, earlier to 8th Nov should be taken into account. Thus again it’s in case to case basis.

Arjuna (Fictional Character): Krishna, what is the limit for depositing cash in bank as per income tax act for businessman and taxpayers filing returns?

Krishna (Fictional Character): Arjuna, such taxpayers will be required to divide his cash book and books of accounts in 3 parts as per time period; a) 1st April to 8th November 2016, b) 9th November to 30th December 2016 and c) 31st December to 31st March 2016. The cash in hand of a businessman at the end of each day can be ascertained on the basis of books of accounts maintained by him. That is why, he can deposit an amount of cash equivalent to the amount appearing in his books of accounts as on 8th November 2016 as his cash in hand. If cash is deposited more than such amount, then it will show negative cash balance in books which will be not accepted anywhere. Because of this, he may have to face tax and penalty on such amount. As per income tax act, if the amount deposited in savings account exceeds Rs.10 Lakh, then inquiry may be conducted. And if he is not able to prove the source of income, then he might have to pay 200% penalty. Businessman should calculate cash as on 8th November on the basis of gross profit, net profit, ratio, etc. and also compare it with P.Y. and C.Y. also and should take decision on the basis of books. Further cash balance on 30th Dec 2016 needs to be taken care off in future also. Hence evidence of all cash receipts and payment made from 1st April to 31st March 2017 will of at most importance. Businessmen will have to revisit his records and update the bills, vouchers, etc to find correct cash in hand.

Arjuna (Fictional Character): Krishna, what are the restrictions on cash sales in income tax?

Krishna (Fictional Character): Arjuna, majority transactions in India takes place in cash. From 9th November, transactions in cash would get reduced and while entering into such transactions the following provisions should be given consideration. There are various provisions in income tax act relating to cash transactions. If they are not followed, penalty may have to be paid.

1.If a particular sale or purchase exceeds Rs. 2 lakh, then the seller will have to quote PAN no. on the bill. This provision is applicable since 1st January 2016.

2.If any sale in cash exceeds Rs.2 lakh, then the seller will have to collect TCS from purchaser at the rate of 1% on the sale amount and will have to deposit the same to the government. Similarly, the limit is Rs.5 lakh in case of sale of jewellery.

Arjuna (Fictional Character): Krishna, what are the restrictions on purchases in cash?

Krishna (Fictional Character): Arjuna, a person can pay only a maximum of Rs.20000 to a single person in a day in cash as consideration for goods purchased. As per section 40(A)(3) of income tax act, a taxpayer will not get deduction of the expense paid in excess of Rs.20,000 in cash. This means that he will have to pay tax on the said amount. The limit is Rs.35,000/- for payment to transporters.

Arjuna (Fictional Character): Krishna, what are the provisions in income tax for other receipts and payments in cash?

Krishna (Fictional Character): Arjuna, many people are accepting and providing loans in cash without being aware of their limits in income tax act. But as per section 269 SS and 269 T, a person cannot accept or repay loan in excess of Rs.20,000/- in cash. Not following this provision will attract 100% penalty. This provision is applicable for transactions of immovable property. This means that one cannot pay or receive in excess of Rs.20,000/- in cash for plot, flat, etc.

Arjuna (Fictional Character): Krishna, under which provision of income tax is Black money liable to tax?

Krishna (Fictional Character): Arjuna, in income tax, the unexplained money, income, assets, etc is taxable directly @ 30% in the following manner:

1) Where a sum is found credited in the books maintained by an assessee for any previous year and the assessee offers no explanation about the nature and source thereof, then the said amount is taxable in Income Tax under section 68.

2) If the assessee has made any investments which are not recorded in the books of accounts and the assessee offers no explanation about the nature and source thereof, then the said amount of Investment is taxable in Income tax under section 69.

3) When in any financial year assessee is found to be the owner of any money, bullion, jewellery, or any valuable articles which is not recorded in the books of accounts and the assessee offers no explanation about the nature and source thereof, then the said amount is taxable in Income tax under section 69A.

4) According to section 69B, if any investment made by assessee is recorded at value less than the amount expended over it then the excess may be deemed to be the income of the assessee for that financial year.

4) As per section 69C, if the assessee has made any expenditure and he offers no explanation about the expenditure made then the amount covered by such expenditure shall be deemed to be the income of the assessee.

Arjuna (Fictional Character): Krishna, what are the provision of penalty in such cases?

Krishna (Fictional Character): There are many such provisions according to which tax, interest and penalty can be levied in such cases. Penalty around 50 to 200% may be levied on under reported and mis-reported income, a big debate is there as what is under reported and mis reported means. As this are new penal provision from 1st April 2016 onwards. One will have to deal on case to case basis for levy of penalty.

Arjuna (Fictional Character): Krishna,what should we learn from this?

Krishna (Fictional Character): Arjuna, from 9th November onwards, the rules relating to transactions in cash have become stringent. Black money is money earned without paying tax, be it income tax, sales tax, service tax or any other tax. From 1st January 2017, more strict rules will be imposed and the government will not forgive those who are evading tax. Due to ban on the old notes, the country will grow financially in near future. Everyone should enter into cash transactions wisely. One should try not to take wrong decisions in haste. People should deposit cash in bank after reviewing the cash amount in books. It should be taken care of that in attempt to earn money, one does not have to get behind the bars. It will be a Happy New Financial Year from 1st January 2017 this time.


Published by

CA Umesh Sharma
Category Income Tax   Report

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