How Your Transactions Reported to Income Tax Department
After demonetization took place government has come up with many amendments in the Income Tax Laws to halt the illegal and high-value transactions that do not fall under the reported accounted money. Now almost everything has become online except that of few categories. According to the new law enforced by Income Tax Department, transactions that go beyond the certain limit that fall under the unaccounted cash shall be reported to the department by the so-called banks and post offices. We are here today to talk about what type of cases will be reported to Income tax department about demonetisation, unaccounted cash or undisclosed income. Read on!
Demonetisation and Unaccounted Cash
After the ban on big notes, approximately 86% of the currency from circulation has been taken out and 14 lakh crore was withdrawn from circulation. The main motive of demonetization is to eradicate black money in the country without a trace. Demonetisation not only brought into light black money and corruption but also the undisclosed income being transferred into various accounts under Benami deposits. To handle this issue, government and income tax department have come up with some strict rules and amendments which will punish those who are at fault.
At first, high tax rates and 200% penalty for unrevealed deposit above Rs. 2.5 lakh has been proposed, which is said to have some loopholes. Later, a new amendment was added to one of the sections which will help the taxpayers not to divert their undisclosed money to other accounts or use other ways to deposit the amount and instead use it for Pradhan Mantri Garib Kalyan Yojana. Here what the amendment says.
- A minimum of 50% tax may be imposed on unexplained bank deposits.
- Half of remaining deposits, or 25% of the original deposit, will not be allowed to be withdrawn for four years. The 25 percent ‘lock-in’ money can be withdrawn after 4-years by the depositor.
- The additional taxes from unexplained deposits shall be used by the government as a fund to build rural infrastructure.
- In case if the assessees do not declare the unaccounted cash voluntarily, a higher 90% tax and the penalty could be imposed.
Ways to declare your unaccounted cash and tax impact
We are here to discuss various ways to declare your cash, tax and unaccounted cash in banned notes.
- A taxpayer who has not reported the cash deposit as income needs to explain the source of the cash deposit made.
In case if the taxpayer is unable to explain the source of the cash deposit
- i) Owns up income in form of cash or deposit in Income Tax Return to be filed for the tax year 2016-17, pays tax before 31 March 2017 but does not opt for Scheme.
- ii) Makes a declaration in respect of cash or deposits under Pradhan Mantri Garib Kalyan Yojana and pays tax, surcharge, penalty and makes a deposit of at least 25% of undisclosed income by a specified date. Immunity from reopening of past income/wealth tax assessments.
- Neither owns up income in Income Tax Return nor opts for declaration under Scheme and addition is made by Tax Authority without detection in search
- Undisclosed income is detected in search conducted after Presidential assent to Bill and
- Taxpayer owns up income in the course of search, substantiates manner in which income was derived and pays up tax (with interest, if any) and includes income in Income Tax Return
If that is not the case:
The tax rate is not same as the tax put on the taxpayer who is honest to the department. A taxpayer who failed to make use of government introduced tax schemes to reveal the undisclosed money and pay the tax for it, he should pay a higher rate of tax to the government.
The government has alerted the Jan Dhan account holders, housewives, and artisans that they will be prosecuted under the I-T Act for making way for black money deposits with the help of their accounts during the 50-day timeframe of demonisation. The initiative was taken in light of knowing that the black money is being diverted into various accounts and even the account holders are being rewarded for that.
New Rule
- Under section 285BA of the Act, “specified persons” are required to report high-value financial transactions of individuals. The specified persons are banks, mutual funds, institutions responsible for issuing bonds, and registrars or sub-registrars. They are to file the Annual Information Report (AIR) on high-value transactions by 31 May.
- ‘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.”
- Depositors who want to deposit more than Rs. 50, 000 in a day or Rs. 2.5 lakh in the given time period need to show their PAN. The income tax department will then track the account using the PAN.
Transactions reported to Income Tax Department
- Cash deposits aggregating to Rs. 10 lakh or more in a year in any of your savings accounts.
- The transaction of payments for a credit card if the aggregate payment made during the financial year is Rs. 2 lakh or more during the financial year.
- Bills or credit card amount of Rs. 1 lakh of more in cash or Rs. 10 lakh or more by another mode shall be reported as well.
- Investments of Rs. 2 lakh or more in a mutual fund.
- Investments of Rs. 5 lakh or more in bonds issued by a company or institution.
- Investments of Rs. 1 lakh or more in the shares issued by a company.
- Purchase or sale of any immovable property of Rs. 30 lakh or more.
- Investments of Rs. 5 lakh or more in a year for investment in bonds issued by RBI.
Annual Information Return (AIR)
Under section 285BA of the Act, “specified persons” needs to report high-value financial transactions of individuals. The AIR should be submitted to NSDL in electronic form, which will be provided to Income Tax Department who will take further action.
