There has been a big hue and cry over the demonetization of Rs. 500 and Rs. 1000 currency for the last 8 days with opposition parties shedding tears for the discomfort of the common man. The business community who are relatively well-off were also upset because of the threatening statement of the government that any deposit above Rs. 2,50,000 would be liable for probe and could meet with 200% penalty. Whether those statements have any legal basis or not, was debated across the country by the intellectuals. The statement of the government did not state whether the deposit ceiling is with reference to savings account or current account or loan account or all the accounts put together.
Among the intelligentsia it was concluded that no penalty could be levied for depositing the amounts representing demonetized currencies into the bank account(s) of the taxpayers if it is admitted as income. The government in return stated that it would seek information before the end of the financial year and would crackdown the tax evaders who deposited unaccounted money into their bank account at this point of time in spite of admitting such deposit as income and reconciling to pay tax at 30% or so.
Earlier the government did not also spell out as to how and when the banks have to submit the report for further proceedings by the tax department. Now the CBDT has amended the Income-tax rules and prescribed the reporting i.e. AIR which must dispel the fears of the taxpayers.
Notification of CBDT
The CBDT has issued in Notification No.104/2016 dated 15.11.2016 which when examined closely would show that the government silently has eased out the difficulties of the business community who operate their business transactions through current account by prescribing a threshold limit of Rs. 12,50,000 for reporting those transactions by banks, co-operative banks and post offices.
The CBDT has also amended rule 114B of the Income-tax Rules, 1962 meant for quoting PAN by substituting Sl.No.10 by including cash deposit of Rs. 50,000 or more on any one day or aggregating to more than Rs. 2,50,000 during the period 9th November, 2016 to 30th December, 2016. This parameter would apply for deposits made with a banking company or a co-operative bank to which the Banking Regulation Act, 1949 applies or Post office.
Further the CBDT has inserted Sl.No.12 to rule 114E by which filing of statement of financial transaction i.e. AIR would apply to the following:
i) Cash deposits during the period 9th November, 2016 to 30th December,2016 aggregating to Rs. 12,50,000 or more in one or more current account of a person or Rs. 2,50,000 or more in one or more accounts (other than current account) of a person is liable to be reported by
a) a banking company or a co-operative society to which the Banking Regulation Act,1949 applies;
b) Post Master General as referred to in clause (j) of section 2 of the Indian Post Office Act, 1898.
Further, sub-rule 5 to section 114E has been amended whereby the statement of financial transaction (i.e. AIR) of newly listed Sl.No.(12) must be furnished before 31.01.2017 though the statement of financial transactions (regular AIR) in respect of other items are to be furnished by 31st May of the succeeding financial year.
Impact of amendment to Income-tax Rules
The impact of the amendments could be listed as under:
i) Cash deposit in a bank account or post office exceeding Rs. 50,000 on any one day requires quoting of PAN on mandatory basis (with exceptions given in proviso to rule 114B).
ii) Cash deposit aggregating to more than Rs. 2,50,000 from 09.11.2016 to 30.12.2016 requires quoting of PAN when such deposit is made with a banking company or a co-operative society to which the Banking Regulation Act,1949 applies or when such deposit is made in post office.
iii) Cash deposits in one or more current account aggregating to Rs. 12,50,000 during the period 09.11.2016 to 30.12.2016 will be reported by the banking company or a co-operative bank to which the Banking Regulation Act, 1949 applies or by the Post Master General, as the case may be.
iv) Cash deposit during the period 09.11.2016 to 30.12.2016 aggregating to Rs. 2,50,000 or more in one or more accounts, other than current account of a person will be liable for inclusion in the statement of financial transaction to be submitted by a banking company or a co-operative society to which the Banking Regulation Act,1949 applies or the Post Master General, as the case may be.
v) These transactions have to be reported before 31.01.2017 by a banking company or a co-operative bank as the case may be or by the Post Master General.
vi) A businessman can deposit Rs. 12,50,000 in his current account and also Rs. 2,50,000 in his bank account not being a current account. In short, Rs. 15 lakh could be deposited by a businessman in his current account and other accounts by appropriating the amounts properly.
The CBDT perhaps has taken note of the woes of the business community who may have fund inflow due to collections from debtors which they may have omitted to deposit post Diwali and hence has prescribed the cash deposit limit of Rs. 12,50,000 in current account besides the existing limit of Rs. 2,50,000 in any other account. This would provide the much needed relief to the traders and small micro entities to overcome working capital crunch.
The amendments to Income-tax Rules, 1962 could not be deciphered by the common man on bare perusal of the amendments and the professional fraternity has to allay the fears of businessmen by explaining the benefit of such amendment in order to set the businesses back to their rails. May be, the CBDT has to give enough publicity in the media about the amendments made so that legitimate accounted money of business community could be deployed without any fear.
The CBDT may also clarify whether repayment of loans by the borrowers directly into their loan account / working capital facility accounts (being a borrowal) would be scrutinized or not by the tax authorities. Any encouraging clarification in this regard would also help the banks to realize many NPA accounts at this juncture.
Written by Mr. Mukesh Bansal