The RBI announcement created a flurry and panic among the many many a lot that Demonetization 2.0 has arrived. Demonetization 1.0 was launched on 8 November 2016, whereby the ‘legal tender’ (official international cash) standing of ₹500 and ₹1,000 notes was discontinued with fast affect, and a restricted interval window of until 30 December 2016 was given to deposit such notes in monetary establishment accounts.
However, this time, RBI in its press launch, has categorically clarified that the alternate of ₹2,000 notes into smaller denominations is a part of the ‘Clean Note’ protection of RBI and is not demonetization. ₹2,000 notes will proceed to remain licensed tender even after September. With this backdrop, permit us to understand the tax implications of the cash deposits being made in banks in ₹2,000 denomination notes following the RBI’s announcement on 19 May.
It is crucial to understand that in Demonetization 1.0, which bought right here into affect from 8 November 2016 midnight, ₹500 and ₹1,000 notes had been declared as invalid international cash; resulting from this truth, any cash deposits in such notes in banks, previous the required prohibit of ₹250,000, attracted deeper scrutiny from earnings tax authorities. Under the actual drive of ‘Operation Clean Money’, plenty of a whole bunch of earnings tax notices had been issued to folks and corporations, asking for the availability of such cash deposits. The basic presumption was that any irregular and disproportionate cash deposits, put up demonetization, was nothing nevertheless the unaccounted money of such people.
For corporations, accepting such invalid notes for doing transactions, and reserving of cash product sales all through put up demonetization interval, was not permissible, in order that they wanted to make clear the availability of such cash deposits as cash in hand as of 8 November 2016 solely and by no means previous that.
However, this time, the RBI’s announcement is in respect of withdrawal of ₹2,000 notes from circulation solely, and it is not regarding their demonetization. Unlike the ₹500 and ₹1,000 denominated notes in Demonetization 1.0, the ₹2000 notes will proceed to remain licensed and legit international cash even after 30 September, as per the RBI’s clarification.
Thus, this time, actual cash deposits in ₹2,000 denominated notes in monetary establishment accounts can very correctly be outlined each out of regular household monetary financial savings, or out of earlier cash withdrawals, or out of cash presents from blood kinfolk or as presents obtained on marriage occasions, or as cash product sales in case of proprietor and totally different corporations, matter to such claims, being supported by real documentary evidences.
Cash product sales as a lot as ₹2 lakh from a person in a single day are allowed as per Income Tax provisions. Post the RBI announcement, cash product sales in ₹2,000 notes have risen sharply for all meals provide apps, petrol pumps, malls, grocery retailers, hospitals, jewellery retailers, and so forth.
Once the businessman establishes the genuineness of cash product sales in ₹2000 notes, being executed on or after 19 May and even after 30 September, with all supporting paperwork like product sales invoices, monetary establishment statements, confirmations from customers, GST returns, co-relation of such cash product sales with purchases and shares, and so forth., then the authenticity of developing cash deposits out of such cash product sales can’t be disregarded and rejected by tax authorities, merely on account of variation inside the ratio of cash product sales inside the current interval with that of an historical occasions. There can’t be a set product sales pattern in any enterprise.
Also, as quickly as a businessman has supplied his cash product sales as his enterprise earnings, then as soon as extra taxing the cash deposits made out of his cash product sales as unexplained cash credit score portions to double taxation, which is not permissible as per the canons of Income Tax Law.
So, even put up the RBI announcement, these having official and actual clarification of sources of cash deposits of ₹2,000 notes needn’t panic and will go ahead with depositing their hard-earned money of their monetary establishment accounts, and will preserve intact all supporting documentary evidences in corroboration of such cash deposits.
Mayank Mohanka is founding father of TaxAaram India and a companion at S.M Mohanka & Associates.
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Updated: 29 May 2023, 10:47 PM IST
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