Unaccounted deposits after demonetisation likely to attract up to 60% tax

Unaccounted deposits after demonetisation likely to attract up to 60% tax

Cabinet approves IT Act Amendments

NEW DELHI: The union cabinet is understood to have approved amendments to the income-tax laws late on Thursday, clarifying the tax liability on deposits of cancelled Rs 500 and Rs 1,000 notes in bank accounts after the November 8 cutoff.

Taxes on unaccounted deposits may be levied at the rate of up to 60% (30% tax plus 30% penalty), higher than the 45% levied under the income disclosure scheme (IDS) that closed on September 30, according to people aware of what transpired at the cabinet meeting.

There had been some confusion about the government being able to impose a penalty of up to 200% on these deposits as announced earlier.

The move came after banks were ordered to stop exchanging old Rs 500 and Rs 1,000 notes at their counters. But all exemptions — including purchases at petrol pumps and pharmacies along with a few new ones such as mobile phone recharges and school fees — will be available until December 15, the government said. However, only the old Rs 500 note can be used in these exempted categories, the government said in the first comprehensive review of India’s demonetisation exercise that also tightened some provisions.

Also Read: Currency recall could cost India a massive Rs 1.28 lakh crore, says CMIE

Absence of clarity in the income tax provisions may allow people to dodge a bullet by depositing just 30% tax, declaring the money as the current year’s income.

Prime Minister Narendra Modi had called a special cabinet meeting to discuss the issue.

The penalty provision in the income-tax act for concealment had been substituted from April 1 by section 270A, according to which penalty is leviable only when assessed income is more than the income declared in the tax return. There is no concept of a penalty for concealing the particulars of income or furnishing inaccurate details.

So, if the amount of cash deposited in a bank is declared by the assessee in his return and applicable taxes are paid, there can be no penalty under section 270A even if the assessee is not able to substantiate its source since there is no evasion involved.

This is because under reporting or misreporting attracts a different penalty.

The government had said it would monitor cash deposits over Rs 2.5 lakh following the withdrawal of the notes on November 8 and unaccounted cash will be taxed.

“We would be getting reports of all cash deposited during the period of November 10 to December 30 above a threshold of 2.5 lakh in every account,” Revenue Secretary Hasmukh Adhia had said on November 10. The department will also match this with returns filed by the depositors and suitable action may follow. Adhia had said such deposits could attract tax and 200% penalty.

“This would be treated as… tax evasion and the tax amount plus a penalty of 200% of the tax payable would be levied as per the section 270(A) of the income-tax act,” he had said. However, experts had subsequently raised the question that the law did not provide for such a penalty.
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