New Income Tax Rules To Keep Track Of Unaccounted Cash
After demonetisation, lots of unaccounted money has been transferred to bank accounts and post offices. To put a halt to it, Central Board of Direct Taxes (CBDT) has come up with some income tax rules. Under Rule 114E of the Income-tax Rules, 1962, specified persons who fall under section 285BA of the Income-tax Act, 1961, have to report high-value financial transactions, which has been modified. Now, as per the modified rule, cash deposits above a certain limit that took place between 9 November and 30 December 2016 will be reported to the income tax department.
If you want to know in which cases the new rules apply, you can read this article to find out. You can also know how to respond if the tax departments ask explanation about the disparity between your tax return and the amount deposited into the accounts.
Under section 285BA of the Act, “specified persons” needs to report high-value financial transactions of individuals. The specified persons include banks, mutual funds, institutions responsible for issuing bonds, and registrars or sub-registrars. They are responsible for filing the Annual Information Report (AIR) containing particulars about high-value transactions, by 31 May of the next year.
The bank has to file an AIR if the total cash deposits of all the savings bank accounts of a person overreach Rs. 10 lakh in a year. Now, the new rule states that ‘cash deposits that took place between 9 November 2016 to 30 December 2016 aggregating to Rs 2.5 lakh or more, in one or more accounts (other than a current account) of a person’ shall be reported by a bank and post office.” Other than that, the banks and post offices will also file AIR by 31 January 2017.
Motive of New Rules
The report submitted by specified persons will help the government collect info about huge deposits by taxpayers. This info will be reviewed by considering the income declared and tax paid by the income taxpayer in previous income tax returns. The main motive behind this new rule is to bring out the excess unaccounted money that is being deposited into the banks and post offices. Other than that, the government also added rules that ask the depositors to show PAN while depositing cash.
As per the new rule, depositors who wish to deposit more than Rs. 50, 000 in a day or Rs. 2.5 lakh in the given time frame need to show their PAN. The department then will track the account on mentioning the PAN.
How to respond if notice is received from income tax department
As said earlier, the huge deposits will be reported to income tax department and it will inspect it further. The income tax department on finding a mismatch between income tax return filled by the individual and the amount deposited will issue a notice seeking an explanation. “As per information obtained from banks and post offices, tax authorities could initiate search proceedings or send notices asking for information regarding the nature and source of the deposits.”
The individual may be asked to present or send a representative to give the explanation to the income tax department. “The department issues a notice of scrutiny assessment under section 143 (2) of the Act to be present on a certain date himself or through a professional for verification of records and seeking clarifications and opportunity to present this case.”
The income tax department will take the next move depending on the documentation and explanation given by the taxpayer. “They can levy tax along with interest and penalty on under-reported income if it could be established that such income pertains to previous years (prior to the financial year 2016-17) and was not reported by the depositor while filing the tax return. It’s best to keep the documentation substantiating the source of funds handy.”
Important points to remember
Individuals who receive notice from income tax department seeking explanation needs to respond to it within the given time frame. There is no need to fart on receiving a notice from the department. Just read it thoroughly and respond as per it. You can even ask permission to prolong the time frame to clarify the issue from assessing officer or whoever is responsible for the work. You can also take the help of CA’s and tax consultants if needed.