Currency Demonetization- Common Queries- Myths – How to declare the money being deposited- Notices by Assessing Officers and Dangers Ahead

In the coming weeks, Property values are expected to crash due to likely hood of Government coming down heavily on Benami Property deals, on Jewelers to reveal identity of customers who purchased Gold and those who have deposited Cash disproportionate to their known sources.

Since the currency notes for Rs 500 and Rs 1000/- have been demonetized, various queries have been floating around in the minds of various assesses or even those who have never filed the returns. In fact the level of misconceptions is so high that my buzz lines have not stopped ringing with lots of all even from low income people who have never filed returns and in fact never needed to as per the exemption limits

There is also anther category of persons coming up who were moonlighting; i.e. people working overtime after their regular jobs and trying to make some extra money to sustain their families and now they are finding little difficult to declare their incomes.

Some common questions that are being asked by various persons, are being addressed below. The questions are-

1. How Much one can declare? How much can my other family members declare?
2. What would be next move on black money-
   1. Are currency notes of Rs 100 or smaller denominations being abolished?
   2. Will there be monitoring on Gold that we have kept in locker?
   3. Any other move by Government
3. Effect on economy
4. Is it safe to deposit money in the account of a friend?
5. What would be the penalty if caught?
6. People have already got notice- If I get notice from Income Tax, what should I reply?
7. What would banks/others be reporting to Income Tax Office?
8. Are there any safe methods by which I can convert my black money in white
9. Some myths floating around as –
   1. Would after this scheme, black money would vanish from market?
   2. Would terror funding be crippled? This is one of the main plank justifying the demonetization of black money?
   3. Department has already issued notices to various depositors
   4. If I split the amounts in smaller lots and deposit in various banks, I would be safe?

1. How much one can declare? How much can my other family members declare? It is not advisable to seek answer to this question from any one unless you share few things as your income levels? Number of family members? Approximate monthly income? Cash drawn during past 6 months and any extraordinary receipt or payment of cash as on weddings, sale of property, advance etc. However, generally limit of Rs 1 lac per male earning member and Rs 1.5 lacs for lady would be safer limit, but not to be taken as sacrosanct unless above data is analysed

2. What would be next move on black money-

• 1. Are currency notes of Rs 100 or smaller denominations being abolished?
  2. Will there be monitoring on Gold that we have kept in locker?
  3. Any other move by Government

As per statements of Government ministers, no such move to ban the notes. However as this happened this time, the move if any would have surprise element and would not be revealed before hand as it would defeat all the purpose of doing so. Moreover with the chaos that have been created and whole world watching this development, seems unlikely that this would be done

Government already has powers to seal any locker or to force opening any locker. So what is new in this? Given the attachment we in India have for gold it would be politically suicidal for any Government to do this. All this appears the figment of imagination in social media at the moment, though repeating once again, Government already has the power to check the lockers.

Another Move expected from Government- Yes it appears, that next move of the Government would be check all benami properties and seize all such properties. Government is expected to come down very heavily on such properties. Government is also expected to come down heavily on the properties acquired by concealing its true price. All this is likely to affect the Real Estate Market even more. However the only saving ground is that this move may earn big wrath for Government, and whether it brings bouquets or bricks for Government is yet to be seen. Hence Government may have to abandon this plan especially for time being and if it does, soon the Government will be in election mode.

Effect on economy– This has already brought economy to grinding halt, whether it is movement of trucks, farmers to plant new crops, real estate deals or just anything and more specifically the sectors where the plastic money was yet to come such as sale of crops. It would have the effect and the recovery would Not earlier than June 2017

Is it safe to deposit money in the account of a friend? No it is not safe, or rather may not be safe. We are not discussing ethical aspect of it, but unless this is done with meticulous planning including justification of cash flow your friend to have. This may land both of you in trouble and may be charged with abetment by Income tax authorities

• What would be the penalty if caught?
• The penalty would range from 105% to 120% AT LEAST. Calculations are simple. Tax rate 30%. Add Cess for 3% and 200% penalty. Now 30% tax +3% cess and all this doubled, adds to nearly 93%. In addition some expenses on CA to represent you, will all add up to about 120% of the unaccounted cash. For people having income exceeding Rs1 Cr, the surcharge @15% would also be applicable

May like to read this too- Penalty for misreporting or concealing of income

People have already got notice- If I get notice from Income Tax, what should I reply? A notice has been circulating on whattsapp, very cleverly made that assessing officer has asked an assessee explaining the source.So far no bank has filed AIR, so how can an assessing officer have access to information and send notice too?Take professional help if required. Though in small cases, no such help would be required, if you don’t have expertise, it will be better to seek help

1. What If you happen to get the notice- Start your work from today itself- make a cash flow justifying the cash in hand. Show the same to Assessing officer..
2. What would Banks be reporting to Income Tax Office- Income Tax authorities have power under section 133(6) under which they can ask anyone person to share any information that may help Income Tax Department know the income or expenditure pattern of any person to help them arrive the taxable income of such an assessee.

Such information has to be furnished online or in the format as may be specified.

Non furnishing of such information would lead to fine, penalties and even prosecution.

Following persons have been notified for submission of information-

1. Jewelers- to report purchase of jewellary exceeding Rs 1 lac and they are required to share PAN of any such person making any purchase exceeding Rs 1 lac.

• Car Dealers-Purchase of expensive cars- To report purchase of luxury cars i.e. exceeding Rs 10 lac in value. They have to collect TCS also @ 1% which the purchaser can get adjusted against his tax liability or can claim refund if due after filing the return of income tax

• Purchase of Property- Tehsil is required to report any transaction of sale or purchase of transaction of immovable property exceeding Rs 30 lakhs

• Hotels – To report any parties hosted where bill exceeds Rs 1 lac and report PAN number

• Banks – To report any cash deposits exceeding Rs 1 lac at a time or exceeding Rs 10lacs aggregate in a year. However during current demonetization, phase they have also been instructed to report any cash deposit exceeding Rs 2.50 during the period 9Nov to 30^th December 2016 in any account.

This is not exhaustive list but list of some of the common places; Some others too have been specified to share information

• Are there any safe methods by which I can convert my black money in white

Hmmm. Big question. Discovering a safe method is not easy. First of all think of any way if the tax liability is small, better to pay tax and stay safe

Buying of gold as generally being considered may not be safe. In one city, the income tax department has taken away the cameras in the jewellary shop to identify the customers who bought gold.

Many people have converted their earnings into Dollars. In the given state of affairs, Dollar is likely to get costlier than Rupee, and hence may be a safe investment

Those planning town home, may consider one as the current prices woud be all time low. Though I personally feel, if Modi decides to come down on property deals too, the market would go down further by 20%

There are some avenues where the income is shown in current year, the penalty may not apply. In such cases, do consider paying installment of advance tax by 15^th December 2016. However in many cases, the cash you may consider may not be unaccounted one. Take professional help if in doubt

Remember assessing officer has powers to reopen the cases for previous years u/s 148. Don’t do anything that he resorts to reopening of the cases

See.