| After the demonetization of old currency notes of Rs 500/1000 denominations on Nov. 8, 2016, there is chaos among people holding hefty amounts of cash. Many taxpayers are left with cash proceeds on sale of property which they have accepted in black from buyers. What are consequences if sellers deposit such receipts in bank account? |
| Section 269SS of the Income-Tax Act prohibits acceptance of Rs. 20,000 or more cash for any transaction of transfer of immovable property. The prohibition applies whether the sum is received as advance or otherwise. In terms of section 271D, violation of this prohibition attracts a penalty equal to the amount accepted or received. |
| Thus, if the seller deposits the black component of sale price (received in cash) in bank account and declares it in its return of income and explains it as consideration for sale of property, he is liable to pay capital gains tax with reference to total consideration including black. He will also be visited with a penalty under section 271D equal to the amount of cash accepted or received by him. |
| Editor’s comments: Any sale proceeds received in cash on or after Nov. 9, 2016 in demonetized notes is an invalid transaction. Even if someone has received new currency as sale proceeds, this will result in levy of penalty which shall be equivalent to amount so received in cash. Click here to read full article |
Tuesday, November 22, 2016
Myth Buster: Receipt of cash in new currency on selling a property would also invite penalty
Monday, November 21, 2016
Judicial precedents on Demonetization of Currency
The Government has decided to discontinue with the legal tender character of High Denomination Bank Notes (HDNs) of Rs 500 and Rs 1,000 with effect from November 9, 2016. In other words, such notes will not be legal tenders from midnight of November 8, 2016. Old HDNs can be exchanged or deposited in banks till December 30, 2016.After announcing such demonetization, people have started worrying about the tax implications even in case of genuine savings deposited into bank account.
In order to provide clarity on this issue, we have analyzed judicial precedents wherein such issues have been discussed in the past.
Saturday, November 19, 2016
Govt. may prosecute people depositing third party black money in their bank accounts
As announced by Government earlier small deposits made in the banks by artisans, workers, housewives, etc., would not be questioned by the Income Tax Department. But some reports show that some people are using other persons’ bank accounts to convert their black money into new denomination notes for which reward is also being given to the account holders who agree to allow their accounts to be used.
To avoid tax evasion, it has been clarified by the Govt. that such activity can be made subject to income tax and penalty if it is established that the amount deposited in the account holder was not of the account holder but of somebody else. Also, the person who allows his or her account to be misused for the purpose of converting black money can be prosecuted for abetment under Income Tax Act.
Friday, November 18, 2016
Govt. allows 2.5 lakh withdrawal for wedding and 25,000 withdrawal for farmers
After demonetization of old notes, the Govt. had imposed various restrictions on withdrawals from ATMs and banks. This restriction on withdrawal badly hit the farmers, vegetable traders and people who needed money for marriage in their family. Considering the genuine difficulties faced by such people, the Govt. has lent following relief:
a) Withdrawal for wedding: Now families can focus on wedding celebration instead of worrying about cash crisis as the Govt. has provided that such families can withdraw up to Rs. 2.5 lakhs from bank account. The amount can be drawn only by either of the parents or the person getting married. The limit of withdrawal will apply to the girl’s and the boy’s family separately. A self-declaration will be required for this purpose.
b) Rs. 50,000 withdrawals for Vegetable traders: Traders in wholesale markets/mandis can withdraw up to Rs. 50,000 per week to meet expenses like wages.
c) Rs. 25,000 withdrawal for farmers: Farmers are currently selling their produce from the Kharif season in the APMC markets/mandis. The farmers who receive such payments in their bank accounts through cheque/ RTGS will be permitted to draw up to Rs. 25,000/- per week in cash. Such relief is given to farmers to meet with various expenses connected with agriculture operation.
d) Withdrawal of Rs. 10,000 by Govt. employees: Government employees will have the option to draw their salary in advance from their bank account. The amount will be adjusted in their salary of November 2016.
e) Reduced limit for exchanging demonetized notes: The withdrawal limit for exchanging demonetized notes has been reduced from Rs 4,500 to Rs 2,000 from November 18, 2016.
Thursday, November 17, 2016
CBDT asks Banks to report each cash deposit above Rs. 2.5 lacs in AIR
The Govt. decided to discontinue with the legal tender character of the existing High Denomination Bank Notes (HDNs) of Rs 500 and Rs 1000. This decision has been taken to curb financing of terrorism through the proceeds of Fake Indian Currency Notes and for eliminating Black Money. Old HDNs can be exchanged or deposited in banks till December 30, 2016. As per the existing provisions of Rule 114B, customers have to furnish PAN for cash deposits above Rs 50,000 per day. As per provisions of Rule 114E, the banks were required to report all cash deposits above 50 lakhs in current account and all cash deposits above Rs 10 lakhs in saving accounts in a financial year.
Now after the demonetization of currency, people are splitting-up their black money by depositing cash in several accounts of third parties (viz, accounts of their friends, employees, relatives). They are depositing cash less than Rs 50,000 per day and in aggregate less than 10/50 lakhs.
To curb such unscrupulous practice of such people hoarding black money, the CBDT has amended Rule 114E to provide that all cash deposits in saving accounts above Rs 2.5 lakhs during the period 9-11-2016 to 30-12-2016 will be reported by banks to income-tax department in AIR (Known as ‘Statement of Financial Transactions’).
Further all cash deposits above Rs 12.5 lakhs in current accounts during the period 9-11-2016 to 30-12-2016 will also be reported by banks to income-tax department in AIR. Further, the CBDT has mandated furnishing of PAN by customers for any cash deposits above 2.5 lakhs during the period 9-11-2016 to 30-12-2016 in bank account.
Demonetization: 4 key changes on exchange/withdrawal of old notes
After the demonetization of old currency notes of Rs 500/1000, the Govt. has allowed exchange of old notes up to Rs 4500. However, there are long queues outside the banks for exchanging old notes. It has come to the notice of Govt. that people are coming again and again to exchange old notes. In order to stop such unscrupulous practice of multiple withdrawal by same person, the Govt. has asked banks to use indelible ink on people exchanging old notes.
Recent decisions taken by Govt. on demonetization are given here under:
1) No charges on multiple withdrawals from ATM: Under existing norms, bank charges fee for more than 3 withdrawal from ATM. However, due to withdrawal limit of Rs 2500 per day, people are forced to do multiple transactions. Thus, in order to provide relief to them, it has been decided to waive off charges on multiple withdrawals from ATMs till December 30, 2016.
2) Indelible Ink for exchanging old notes: It has come to the notice of Govt. that people are coming again and again to exchange old notes. In order to stop such unscrupulous practice of multiple withdrawal by same person, the Govt. has asked banks to use indelible ink on people exchanging old notes Rs. 500 and 1,000.
a) Withdrawal limits: The withdrawal limit from ATMs has been increased from Rs 2000/- per day to Rs 2500/- per day. The cash withdrawal limit from bank account has been increased to Rs. 24000 per week from Rs 20,000. However, the withdrawal limit of Rs. 10000 per day from bank account has been removed. The current account holders (which are operational for last three months or more) are allowed to withdraw up to Rs. 50000 from bank per week.
3) Exchange limit: The limit of exchanging old notes of Rs. 500/1000 over the counter has been increased from Rs. 4,000 to Rs. 4,500.
4) Senior Citizens: Banks are advised to make arrangements for separate queues for Senior citizens and Divyang (disabled) persons. Similarly, separate queues should also be arranged for people depositing money and those exchanging old notes.
Govt. extends validity of demonetized currency till Nov. 14, 2016 for payment of utility bills, etc.
As the Government has declared that currency notes of Rs. 500 and Rs. 1,000 denominations will not be valid from midnight of November 8, 2016, citizens will have to surrender the old notes at any branch of a bank or post office to get the new notes.
However, Govt. had notified that such demonetized currency would be valid till Nov. 11, 2016 for certain payments like utility bills, Petrol, diesel, LPG Cylinder, etc. Now the Govt. has extended the validity of such currency till Nov. 14, 2016 for payment of utility bills, etc. However, the Govt. had put a rider that payment of utility bills with demonetized currency can be made only by Individuals or households. Further, only arrears or current charges of utility bills can be paid with such currency and no advance payment shall be allowed.
How Much Taxes To Be Paid If You Deposit Black Money In Bank Account
When any person deposits some cash amount in his bank account and it is established that such deposit is an unaccounted money (black money), the entire deposit shall be charged to tax without providing the benefit of slab rates. We have analysed the tax impact in three different scenarios, when the amount deposited in bank account is proved to be black money. We request our readers to not rely on the table being circulated in social networking platforms wherein benefit of slab rates and exemption limit is given on black money.
Permissible payments with old notes till Nov. 11, 2016
As the Government has declared that currency notes of Rs. 500 and Rs. 1,000 denominations will not be valid from midnight of November 8, 2016, citizens will have to surrender the old notes at any branch of a bank or post office to get the new notes.
However, Economic Affairs Secretary, Shaktikanta tweeted that such old notes of Rs 500 and Rs1000 would be valid till November 11, 2016 for payment of utility bill like water, electricity, etc. He further said that such old notes can also be used for payment of fees, taxes and penalties to the Central and State Govt. including Municipality and local bodies. Earlier the Govt. had allowed acceptance of old notes till November 11, 2016 for making payment for following purposes:
1) Making payments in all pharmacies on production of doctor’s prescription and proof of identity;
2) Making payments on all toll plazas;
3) For purchase of LPG cylinders;
Govt. allows 2.5 lakh withdrawal for wedding and 25,000 withdrawal for farmers
The Govt. has decided to discontinue the legal tender character of high denomination bank notes of Rs 500 and Rs 1000. In other words, such notes will not be a legal tender from midnight of November 8, 2016. This decision is being made to curb financing of terrorism through the proceeds of Fake Indian Currency Notes and for eliminating Black Money. Key takeaways of this decision are given hereunder:
1. You can exchange old high denomination notes of Rs 500 and Rs 1000 at any of the 19 offices of the RBI or at any of the bank branches or at any Head Post Office or Sub-Post Office from 10th November onward till 30th December, 2016.The RBI will issue two new notes of Rs. 2,000 and Rs. 500.
2. You can go to any bank branch with valid identity proof for exchange of notes up to Rs. 4,000. Exchange of currency in excess of Rs. 4,000 (in denomination of Rs. 500 or Rs. 1,000) shall be allowed by way of credit of money into your Bank account only.
3. Withdrawal from ATMs shall be restricted to Rs.2,000 per day per card up to 18th November, 2016. The limit shall be raised to Rs.4,000 per day per card from 19th November, 2016.
4. You can withdraw cash against withdrawal slip or cheque subject to ceiling of Rs. 10,000 in a day within an overall limit of Rs. 20,000 in a week (including withdrawals from ATMs) up to 24th November 2016.
5. There is no restriction on any kind of payments by cheques, demand drafts, mobile wallets or debit or credit cards and electronic fund transfer.
6. The existing notes of Rs 500/1000 can be used till 11th November, 2016 for payment in any government hospitals, to purchase bus tickets at government bus stands, train tickets at railway stations, air tickets at airports, for purchase of milk, consumable goods at Govt. authorized booths, petrol or diesel or for payment at crematoria and burial grounds or to exchange foreign currency by foreign tourists.
7. In case it is not possible for you to visit the branch you may send your representative with an express mandate, i.e. a written authorisation.
8. All ATMs, Cash Deposit Machines, Cash Recycles and any other machine used for receipt and payment of cash shall be shut on 9th and 10th November, 2016.Banks and Government Treasuries will be closed on 9th November, 2016.
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