Since 9th of November 2016, when Indians woke up to the news of demonetization of Rs 500 and Rs 1,000 notes. People are even calling up to know how they can declare their cash that they are holding without acquiring a tax liability.
Tax professionals said that there is no fear for the honest taxpayers. There is no reason to panic if you are having Rs 500 and Rs 1,000 notes lying with you only if you can explain the source of cash. You can go and deposit those cash in your bank or either exchanges it for the new notes. As the tax officials have warned that the cash which are being deposit in the bank should match the income declared in your tax return. We will get the details of all the accounts in which more than Rs 2.5 lakh have been deposited. Any income mismatched as declared by the account holder will be treated as a case of tax evasion.
Emphasizing of income invites a penalty of 200% of the tax payable under the new Section 270(A) of theIncome TaxAct. Those who are depositing Rs 3-5 lakh will not face too much of problems because the tax and the penalty will be within the legitimate limits. And those with a larger amount will have to pay a huge amount as a penalty. The adequate tax for someone who is depositing Rs 20 lakh is 63.5% and it keeps on increasing as the amount increases. Under the Income Declaration Scheme which ended on 30th September, they will have to pay only 45% tax and answer no questions. Now they will have to answer a lot of questions and pay a higher tax. Even then, there is no immunity from pursuit. He has repeatedly pointed out that the Prime Minister had advised people to come clean under the declaration scheme.
Chartered accountants and tax consultants are in high demand as people with cash explore ways to get around the ban on high denomination notes. Tax professionals are charging between 5% and 25% just to suggest strategies that can convert the unaccounted cash into the legitimate money, which can then be safely deposited in the bank account. Here are some of the hacks being used:
SAVINGS OF HOMEMAKER
Cash can also be shown as the money saved up by the housewife out of the monthly household budget. A homemaker can even show a valid amount as her personal pocket money. There is no fixed amount mentioned in the tax laws about how much money can be saved, but it has to be a valid amount and must be consistent with the total household income and monthly expenses. For example, if the taxpayer earns Rs 80,000 a month and the household expenses are Rs 40,000 then his wife must be able to save around 8,000-10,000 every month. Watch out for the tax department will launch a scrutiny only if the amount saved crosses 20-25% of household budget.
INCOME FROM TUTIONS, COOKERY CLASSES
There has been a growth in the number of people who are earning from home tutions or cookery classes. From giving tutions, you can save up to Rs 2.5 lakh a year. Basically the Tax professionals are encouraging people to file their tax returns of the last two years i.e., 2014-15 and 2015-16 to make the case more impenetrable. Tax laws allow the delayed tax returns to be filed and there is a small 1% penalty interest charged for every month of delay, if there are some dues in the tax. If the individual has not been filing their tax returns then this is a good time for them to file their previous years' returns and get back on track. This will allow such taxpayers to address a higher income this year.
Watch out for
If the income addressed is too high then the tax department can scrutinize the returns and ask the assessee to provide the names of students. In utmost cases, they will also inspect the daily routine of the assessee.
GIFTS FROM RELATIVES
Another common way is to show the cash as gifts from the relatives. Gifts from stated lineal relatives are not taxable only if the recipient is an adult. Therefore, the amount must be consistent with the overall economic status of the household. A family with a monthly income of Rs 1 lakh can get cash gifts of about Rs 40,000-50,000 in a year.
Watch out for
If the amount shown as gifts crosses legitimate limits, tax department can scrutinize source of income of giver.
WEDDINGS AND MUNDANS
Recently, those who tied the knot this year or whose children had their mundan ceremony are very lucky. Weddings and mundans are such occasions where gifts from non-relatives are tax-free. They can show the cash as gifts which has been received on these occasions. Therefore, the amount must be consistent with the overall economic status of the family. This is also a two-edged sword. If the wedding was a lavish affair then the tax department can also ask for the source of the money spent on the wedding.
Tax Assist is a professional income tax consultancy in India for both corporate houses and individual tax payers; the latter comprising Salaried Individuals, Seafarers, Professionals and Non Resident Indians.
With the help of Tax Assistand its team of income tax professionals, taxpayers can minimize their Income Tax liability, maximize their net income and create opportunities to save for current and future needs while maintaining proper accounting standards and income tax returns which are compliant with the Law.
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