“My uncle is a businessman in Pune. He had withdrawn Rs. 80 lakh to purchase a land. All talks were almost over and only payment was pending. Then there was the announcement from Prime Minister. So now, he will have to pay the tax of 200% on it!” a lady was talking to her friend while standing in the queue to collect cash from ATM. “Poor guy” I felt. I’ve seen some businessmen who have daily transaction of more than Rs. 5 lakh. They are doing legitimate transactions. Still do they have to pay so much of tax!? I wanted to confirm if that was true that people have to pay fine if they deposit more than 2.5 lakh rupees! Here is the truth!
You are liable to pay a tax only if the money that you are depositing into your account is not supported with necessary documents. That means, if you are money is white, then you don’t have to worry even if the amount is huge.
Suppose Mr X has Rs. 80 lakhs in cash, then he can deposit it in his bank account. He can do this in any bank till 30th December 2016. Even after that, one can get invalidated old currency notes exchanged in certain recognized RBI branches across the country till 31st March 2017. Mr X has to have necessary documents ready to substantiate that the money is legal and white. The bank may not ask the person to submit them immediately. Even tax officials may not reach your doorstep. But Mr X will have to show this income while filing income tax returns (ITR) in the coming financial year.
If the money is black and Mr. X doesn’t have any documents to support it or he fails to show them in the ITR, then he will be ruining his life. He can expect a notice from tax officials which might come only in September 2017. However, it does not mean that he will have to suffer with punishment. Because this notice will start a series of hearings, proceedings etc where Mr A has to prove things such as where in his tax returns are the cash deposits shown as income, what was the source of income etc. If the tax officer is satisfied with the explanation, then Mr X is safe. Otherwise, the tax officer can issue an order which levies a penalty on him. The penalty can be either 50% of tax amount (for under-reporting) or even 200% of tax amount (for mis-reporting) depending on the nature of default. If the officer wants to levy the heavier 200% penalty, the onus lies on the officer to prove that mis-reporting has taken place. Therefore, even tax officer will be careful while putting the fine because he is answerable later on for his decision.
Even after that Mr X can appeal against the decision at multiple levels. He can appeal to the Commissioner (Appeals), the Income Tax Tribunal and even the Courts. So if you are not wrong, then you can get justice without any hurdle. Government has rightly understood the possible problems that people may face and has taken necessary measures to address them.
So there is no need to be panic or think that the Government is unnecessarily burdening you with heavy fines/taxes for your legitimate money. Stay cool and relax. Right people can’t be punished for wrong reasons. However, you can definitely consult your Chartered Accountant for more clarity because individual cases may be different and this article is written based on common principle.