Penalty for depositing cash in bank account?

Introduction

The ban of Rs.500/1000 note in India is creating havoc in the Indian markets. Everybody is either rushing towards banks or towards jeweller market to safeguard the black money.

In this article, we will discuss how government will levy penalty or tax on the cash deposit in bank account of the public. We will also discuss the possibilities of action that government may take depending upon the size of the money deposited.

Everybody is living with the fear that government will slap 200% penalty for sure. However, this is not the case. Government works under a system and make laws for everything. Everybody works under the ambit of law even the government. So if they have to slap any sort of penalty, they levy it under income tax act, 1961 by following a proper procedure. Hence, let us understand the type of depositors and the chances of penalty imposition upon them.

#Point 1 – Cash Deposited Up to 2.5 lakh: The first category of person is those who have deposited cash up to 2.5 lakh. This category doesn’t have to worry about. As, finance minister in his speech has also said that we will not going to disturb or ask any question on deposit up to 2.5 lakh.

Hence, if have money up to 2.5 lakh, then go ahead and deposit the same without any fear.

#Point 2 – Cash Deposited Up to 10 Lakh:  Most of the middle class are covered under this point. They save their hard earned money and secure it in their lockers. They have saved this money over the years. It is all legitimate money which they have earned and saved by working hard over the years like someone has saved it for daughter marriage or someone may have saved it purchase a small house.

Though the government will be keeping an eye on this category as well, however there are little chances that government will interfere in this category. Nowadays the value of 10 lakh is no more considered as superior.

The current practice

Also, people may deposit this sum breaking into smaller sum of 2.5 lakh and may deposit it in the name of family members which is also a lot of people may already be doing.

Further, government also understands this fact and they will not interfere with this needy money of the middle class.

#Point 3 – Cash Deposited Up to 50 Lakh:  Anything over and above 10 Lakh will catch the eye of the taxman. If your returned income does not match with the amount you deposit, then you might be in trouble.

E.g. suppose, you regularly file the ITR with 5 lakh income. Now suddenly you deposit the sum of 40 Lakh in your account which cannot be justified with a small income. Hence, department may treat this income as unexplained credits and may tax the income at 30% with 200% penalty under section 270A.

This point is very important; hence we must understand this point well.

Cash credit: Once you deposit the sum into the bank account and under scrutiny proceedings, you were unable to justify the sum, then IT department will deemed that deposit as unexplained credit or cash credit under section 68 of Income tax act, 1961.

Section 115BBE: This section is one of the harsh sections of the income tax act. Once it is proved that the cash deposit is cash credit under section 68, and then it shall levy the tax rate of flat 30% without even providing the basic exemption limit.

E.g. if you have cash credit of Rs.40 lakh, then 12 Lakh will be the tax amount.

Penalty under section 270A: Once it is proved that you are a mischief, then penalty provision under income tax act would automatically comes into picture. The AO shall use the section 270A, to levy the penalty of 200%.

However, the penalty of 200% under section 270A can only be levied if any of the conditions is fulfilled:

a) Misrepresentation or suppression of facts.

b) Failure to record investments in the books of account.

c) Claim of expenditure not substantiated by any evidence.

d) Recording of any false entry in the books of account.

e) Failure to record any receipt in books of account having a bearing on total income;

f) Failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply. (ignore, applicable in case of international transaction).

Hence, the above three sections will play a big role under IT department scrutiny.

Important Point

“The most important point of this whole process starts from non-justification. Hence, if you can justify the deposits and has already paid the full taxes, then no penalty can be imposed upon you.”

#Point 4 – Cash Deposited more than 50 Lakh: Anything over and above 50 Lakh will require a strong justification otherwise there will be very less chances that penalty can be saved. However, if you plan well, justify your income and the deposits thereof, and then you don’t need to worry.

Conclusion

This is not going to be easy for anyone of you. This is a historic event. Let us not panic under these circumstances rather help each and other and let’s make this government’s step a success. Hope we win this fight against an illicit practice of black money, terror funding etc.