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Deposit money in bank only if you can account for it: Tax experts

Penalty for unaccounted income could range from 50% to 200% of evaded tax

Sudipto Dey & Dilasha Seth  |  New Delhi 

ATM closed for the day due to demonetization of Rs 500 and 1000 currency notes in Shimla
ATM closed for the day due to demonetisation of Rs 500 and 1000 currency notes in Shimla

If you are one with a hoard of in your hand, you should deposit that in only if you are able to account for the source of income, says experts. Depositing unaccounted money into would open up one to scrutiny by the income-(I-T) department, though some consultants said it might be worth a chance.

“One should be in a position to match the in hand with income from business operations,” said Pallav Pradyumn Narang, partner, Arkay & Arkay, a Delhi-based chartered accountancy firm. Businesses would have barely four months in the current financial year to justify the hoard as business income. Alternatively, they should be in a position to establish that the cash was withdrawn for business purpose.

If the amount is unaccounted for, various provisions of Income-Act, 1961, will come into effect. “If the sources of income are unaccounted for, these would be deemed to be current year’s income under Section 69A of the Income-Tax Act, 1961, and will attract income tax at the rate of 30% along with applicable surcharge and education cess, under Section 115BBE of the Act,” said Neeru Ahuja, partner, Deloitte Haskins & Sells.

According to experts, the highest marginal rate would work out to around 35%. Further, any unaccounted income would attract penalty under Section 270A of the Act, which can range from 50- 200% of evaded tax. The tax defaulter could also attract prosecution under Section 276C of the Act, with imprisonment from three months to seven years with fine.

The penalty rate was revised from 100% to 300% in the last Budget to reduce litigation from assessees. However, the penalty for misreporting income was doubled to 200%. The 50% penalty will be levied in cases of under-reported income, while 200% in case of misreporting income.

“The penalty will be based on a case-by-case basis. Initially, those sitting on unaccounted cash can just deposit the amount in bank and pay the tax incidence, say 30%. The I-T department, based on the available information, will look at these on a case-by-case basis,” said a senior ministry official.

Some consultants feel that for such assessees, penalty will arise when it comes to the notice of the I-T department.

One could also appeal to tax authorities for taking a lenient view and keep the penalties at the minimum, said a Mumbai-based tax consultant.

However, some tax experts feel any move to bring unaccounted for income into the fold of the banking system would be an unwise one as it will open up the assessee to scrutiny of income sources of previous years. “Why would you open the Pandora’s box for yourself?” asked a Delhi-based chartered accountant.

Tax experts said most of their clients were in a tizzy to figure out ways to suitably dispose of cash in hand.

First Published: Wed, November 09 2016. 20:03 IST