Got an I-T notice on cash deposits? Don't panic and follow this guide

The Reserve Bank of India (RBI), in tandem with public sector and commercial banks, has undertaken data mining on a massive scale to identify how funds have been moved in the country after November 8. The government has come down hard on individuals and businesses operating doctored accounts, having deregistered and shut more than 100,000 companies and penalised more than 300,000 others. The I-T department has also identified over 37,000 shell or paper companies channelling black money through methods such as hawala. As a part of its Operation Clean Money, the I-T department identifies individuals whose income tax return filings are inconsistent with the amount of cash deposits made in their bank accounts during the demonetisation drive. It then sends a notification through SMS or e-mail, and the individual must provide a response on the department’s website for the same.

If you receive such a notice, do not panic or ignore it. First, verify that the PAN (Permanent Account Number) stated on the notice is yours. Since the I-T department issues notices to a specific PAN and not based on your name, there are chances that an erroneous notice may have been sent to you instead of someone else with the same name or birth date as yours. If you have received such a notice, irrespective of whether you have made the transactions or not, you must log into your account to submit a response. Here's how:

• Visit the income tax department website, https://incometaxindiaefiling.gov.in, and log into your e-filing account.

• Click on 'Cash Transactions, 2016' under the 'Compliance' tab. The page will then list all cash deposits made by you between November 9 and December 30, 2016. 

• Before you begin the verification process, make sure you have all pertaining documents such as receipts for cash income, past tax returns, etc. 

You can then begin the process to file your online response in three simple steps, which are as follows: 

Step 1: First, ensure that the transactions listed have been made by you. Even if you have not received any notice from the I-T department, but have deposited cash during demonetisation, it is advisable to log into your e-filing account to check the 'Compliance' section. Based on your assessment of the transactions, select either 'The account relates to this PAN' or 'The account does not relate to this PAN'. After selecting the applicable option, you will be directed to the next step for further verification. 

Step 2: Confirm if the amount stated on the page is accurate. In case of a discrepancy in the amount mentioned and the actual amount deposited by you, enter the correct amount, and proceed. 

Step 3: After confirming the amount deposited, you need to provide the complete details regarding the source of cash and the category it belongs to, such as cash in hand, payment received, etc. 

Explaining cash deposits

If you claim the deposit as a past income or savings, you must provide details pertaining to the source of the income, which will then be verified by the I-T department based on your previous tax returns. In case the information provided does not match your tax profile, the I-T department will pursue the case for further verification. 

If you claim the cash deposit belongs to an income category exempt from tax such as agricultural income, gift, or donation, you must provide additional details, including the PAN of the person/s from whom the amount has been received. In case of cash income originating from multiple sources, you need to provide a break-up of the total amount under three categories: 'Cash received from identifiable persons (with PAN)', 'Cash received from identifiable persons (without PAN)', and 'Cash received from unidentifiable persons'.

Sending notices about cash deposits made during the demonetisation drive is aimed at enabling taxpayers to conveniently declare their cash incomes and clear up any discrepancies. The I-T department has even made available the provision of disclosing your cash deposits during the year on the ITR-1 form. Operation Clean Money is a commendable move by the government, highlighting its firm stand on tax evasion, and will be a powerful tool to curb the movement of black money in the Indian economy.

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Mr Archit Gupta is the founder & CEO of ClearTax