Sunday , August 19 2018

Grey areas people are exploiting to justify unaccounted cash as legal income

Grey areas people are exploiting to justify unaccounted cash as legal income

With the notes of Rs.500 and Rs.1000 being ban, there is much unrest in the country with people trying to dispose of the ban notes that they have and get new ones instead. But then one of the major problems is of the people who do not have any proper account of the cash they hold.

Current situation

The Founder and CEO of the tax filing portal,, said that their helpline number not got a time to breathe from the moment that government has announced the ban of Rs.500 and Rs.1000 notes. The most common query that comes from people is of how they could declare the cash that they hold to the banks without being blamed of tax liability.

S.No Depositing Amount Tax Amount Penalty Amount
1 Amount Up to 2.5 Lakh Nil Nil
2 Amount from 2.5 – 5 Lakh Rs.25,000 Rs.50,000
2 Amount from 5 – 10 Lakh Rs. 1.25 Lakh Rs.2.5 Lakh
3 Amount from 10 – 15 Lakh Rs. 2.75 Lakh Rs.5.5 Lakh
4 Amount from 15 – 20 Lakh Rs.4.25 Lakh Rs.8.5 Lakh
5 Amount from 20 – 30 Lakh Rs.7.25 Lakh Rs.14.5 Lakh
6 Amount from 20 – 50 Lakh Rs.13.5 Lakh Rs.27 Lakh
7 Amount from 50 Lakh – 1 Crore Rs.28.25 Lakh Rs.56.50 Lakh

But then what most tax experts are saying is that if people have Rs.1000 and Rs.500 notes then there is not to fear or worry about. One may have how much ever of those notes, and they could just go to the bank and get it deposited. But the only factor to be kept in mind that one should be able to show the source of that cash. A person would face a problem in depositing the cash if the deposit amount does not match the income that you have declared in your tax return. But if this is in place, there is nothing to worry.

As per the talk of Mr. Hasmukh Adhia, who is the revenue secretary which is reported in various sources, the person who deposits amount more than 2.5 L and their incomes and tax filling mismatched means, the respective person would be charged under tax evasion.

Some important factors to remember

  • If anyone founded as guilty on reporting their income while filing for tax, then the penalty can be applied up to 200% based on the situation and amount of the tax payable under the government act of Income TAX.
  • For the people who are depositing Rs. 3 to 5 lakhs will be charged penalty within a reasonable limit but people depositing money more than that will have problem. In case you are depositing Rs.20 lakhs then the tax charged is 63.5% and the percentage keeps increasing with the amount.
  • Unlike before the people who deposit money that does not match with their income that has been declared to the income tax department, have to now answer a lot of question and also have to pay a higher amount of tax.

Demand for accountants

It has been reported that the demand for tax consultants and chartered accountants have increased to a great extent in the past three or four days. For providing strategies and ways to convert the unaccounted cash to white money the accountants and tax professional seem to be charging around 5% to 25% of the amount that is to be converted. People are coming up with all kinds of stores to prove that the money comes from a legitimate source so that the amount can be deposited to the bank accounts.

Common stories being used for depositing higher amounts to banks

Money from tuitions and similar classes– The is not to the fact that in the recent times a lot of home makers and college students earn money from conducting tuitions and different classes such as cookery classes, singing classes, dance class, etc. But this factor is being used common for depositing certain amount of money to the bank accounts. A lot of people are coming to the banks for depositing money, and when being asked the source of the money the common reply is that it is the income of their wives and children.

A chartered accountant from the capital of India Delhi said that the net money up to Rs.2.5 L per year can be shown as earnings from taking tuitions or any other mode of teaching for students and if amount gets exceeds government officials have rights to enquire about the number of students studying in person.

In a case where the income from such classes is shown very high then the tax department may demand you to show the names of the students and also carry out further investigation to see if you really give tuitions to the number of students that you have mentioned.

Home maker savings – a lot of people, especially women are coming to banks for depositing money saying that it is their savings from the household budget, which is accepted to a certain extent. The home makers can have money up to a reasonable limit for spending on daily basis for household needs. Even though there have been not particular limit to this, but an amount that is fairly huge will not be accepted. The money that a homemaker comes with has to commensurate with the total household income.

So the tax department is soon going to take action on accounts where the amounts that are being deposited as household savings exceed 25% of the household budget.

Loans or advances given to workers – Now businessmen can provide loans and advance salaries to their employees. But people are using this strategy to cover their unaccounted money.  So it better that you have a proper paperwork for such transactions.

Gifts from relatives – Now this is another common story that has been coming up for quite some time now. It is true that one may receive cash gifts from relatives but then there has to be a limit to it. Now a cash gift from certain particular lineal relatives are not taxable in a case where the recipient is an adult but still it has to be in par with the economic status of the household. Cash gifts of Rs.40000 to Rs.50000 in a year are accepted for a family whose annual income is Rs.1 lakh.

But in a case where the gift amount is too much, you may be asked to disclose the name of the person who has gifted you the amount and that person may be questioned.

Cash gifts received in weddings and mundans – For people who have got married this year and the couple who have had their child’s mundane ceremony this year need not worry much. The cash gifts that you receive in such occasions from relatives and also friends are not taxable. So you can easily deposit the amount to banks. But then of course the amount has to be a reasonable one and should match the economic status of the family. But then in case you have an extra lavish wedding then you may be enquired on the source of money that you spend in the lavish wedding if you show a high amount received as gift.  In such cases the tax department would also ask for the gift givers name and question them.

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