Pension Funds

Pension Funds – Section 80CCC: This section – Sec 80CCC – stipulates that an investment in pension funds is eligible for deduction from your income. Section 80CCC investment limit is clubbed with the limit of Section 80C – it means that the total deduction available for 80CCC and 80C is Rs. 1.50 Lakh. This also means that your investment in pension funds upto Rs. 1.50 Lakh can be claimed as deduction u/s 80CCC. However, as mentioned earlier, the total deduction u/s 80C and 80CCC can not exceed Rs. 1.50 Lakh. - See more at: http://taxguru.in/income-tax/all-about-deduction-under-section-80c-and-tax-planning.html#sthash.YBHRZZlY.dpuf

Penalty on Cash deposit of Rs.500/1000 note in Bank Account in India

The ban of Rs.500/1000 note in India is creating havoc in the Indian markets. Everybody is either rushing towards banks or towards jeweler market to safeguard the black money.

In this article, we will discuss how government will levy penalty or tax on the cash deposit in bank account of the public. We will also discuss the possibilities of action that government may take depending upon the size of the money deposited.

Everybody is living with the fear that government will slap 200% penalty for sure. However, this is not the case. Government works under a system and make laws for everything. Everybody works under the ambit of law even the government. So if they have to slap any sort of penalty, they levy it under income tax act, 1961 by following a proper procedure. Hence, let us understand the type of depositors and the chances of penalty imposition upon them.

#Point 1 – Cash Deposited Up to 2.5 lakh: The first category of person is those who have deposited cash up to 2.5 lakh. This category doesn’t have to worry about. As, finance minister in his speech has also said that we will not going to disturb or ask any question on deposit up to 2.5 lakh.

Hence, if have money up to 2.5 lakh, then go ahead and deposit the same without any fear.

#Point 2 – Cash Deposited Up to 10 Lakh: Most of the middle class are covered under this point. They save their hard earned money and secure it in their lockers. They have saved this money over the years. It is all legitimate money which they have earned and saved by working hard over the years like someone has saved it for daughter marriage or someone may have saved it purchase a small house.

Though the government will be keeping an eye on this category as well, however there are little chances that government will interfere in this category. Nowadays the value of 10 lakh is no more considered as superior.

The current practice

Also, people may deposit this sum breaking into smaller sum of 2.5 lakh and may deposit it in the name of family members which is also a lot of people may already be doing.

Further, government also understands this fact and they will not interfere with this needy money of the middle class.

#Point 3 – Cash Deposited Up to 50 Lakh: Anything over and above 10 Lakh will catch the eye of the taxman. If your returned income does not match with the amount you deposit, then you might be in trouble.

E.g. suppose, you regularly file the ITR with 5 lakh income. Now suddenly you deposit the sum of 40 Lakh in your account which cannot be justified with a small income. Hence, department may treat this income as unexplained credits and may tax the income at 30% with 200% penalty under section 270A.

This point is very important; hence we must understand this point well.

– Cash credit: Once you deposit the sum into the bank account and under scrutiny proceedings, you were unable to justify the sum, then IT department will deemed that deposit as unexplained credit or cash credit under section 68 of Income tax act, 1961.

– Section 115BBE: This section is one of the harsh sections of the income tax act. Once it is proved that the cash deposit is cash credit under section 68, and then it shall levy the tax rate of flat 30% without even providing the basic exemption limit.

E.g. if you have cash credit of Rs.40 lakh, then 12 Lakh will be the tax amount.

– Penalty under section 270A: Once it is proved that you are a mischief, then penalty provision under income tax act would automatically comes into picture. The AO shall use the section 270A, to levy the penalty of 200%.

However, the penalty of 200% under section 270A can only be levied if any of the conditions is fulfilled:

a) Misrepresentation or suppression of facts.

b) Failure to record investments in the books of account.

c) Claim of expenditure not substantiated by any evidence.

d) Recording of any false entry in the books of account.

e) Failure to record any receipt in books of account having a bearing on total income;

f) Failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply. (ignore, applicable in case of international transaction).

Hence, the above three sections will play a big role under IT department scrutiny.

Important Point

“The most important point of this whole process starts from non justification. Hence, if you can justify the deposits and has already paid the full taxes, then no penalty can be imposed upon you.”

#Point 4 – Cash Deposited more than 50 Lakh: Anything over and above 50 Lakh will require a strong justification otherwise there will be very less chances that penalty can be saved. However, if you plan well, justify your income and the deposits thereof, and then you don’t need to worry.

Demonetisations of Rs. 500 & 100 Notes– Consequence & Duties

Demonetisations of the Higher Denomination Notes by Government of India – synopsis, consequence and duties

Introduced on the evening of 8th November 2016, the Government announced the decision to scrap the Rs. 500/- and Rs. 1,000/- notes with the aim of combating Corruption, black Money and cross border terrorism via counterfeiting. Prime Minister Narendra Modi was quoted to be saying that the above mentioned notes will only be “worth the paper they are printed on,”

Further, the Reserve Bank of India as approved and cleared a proposal for a new Rs. 500/- and Rs. 2,000/- currency notes abandoning Rs. 1,000/- currency notes for the time being.

On a broad basis, it should be noted that all other transaction, such as those done via cheque, DD, payment via credit or debit cards does not have any restrictions and will thus not be affected.

The Government has issued a timeline within which they aim to remove the old Rs. 500/- and Rs. 1000/- notes from circulation, of which the important parts are as follows.

A brief summary of the dates, events and remarks are given below for a glance

Start Date	Particulars	End Date	Limits (Rs.)	Remarks
8-11-2016	Old Currency notes are no longer valid. Certain specified outlets still accept the old currency till the end date.	11-11-2016	–	will still be accepted in Petrol Pumps, government hospitals, Railway, airline, government bus ticket booking counters, Consumer co-operative stores run by state or central government, Milk booths authorized by state governments, Crematoriums and burial grounds till 11th November 2016.
9-11-2016	ATMs shut down and Banks closed to public.	10-11-2016	–	ATMs will not work and banks will not be accessible to public  to adjust to the changes made.
10-11-2016	Old Notes can be deposited in banks	30-12-2016	–	Valid Bank Account or Post Office saving account
10-11-2016	Old Notes can be exchanged for new ones.	24-11-2016	4,000/-  amount to be reviewed later	Original Identity Proof with a copy in the form of Aadhaar card, PAN Card, ration card, passport, driver license.  Exchange can be made in all branches of commercial banks/RRBS/UCBs/State Co-op banks or at any Head Post Office or Sub-Post Office and all Issue Offices of RBI
10-11-2016	Money can be withdrawn from ATMs.	18-11-2016	2,000/- per day	–
10-11-2016	Money can be withdrawn from Banks	–	10,000/- per day limited to 20,000/- per week	Weekly amount includes amount withdrawn from ATMs.
19-11-2016	Amount that can be withdrawn from ATMs is increased.	–	4,000/- per day	–
31-12-2016	Old Notes can be deposited in cases where depositing before 30-12-2016 was not possible.	31-3-2017	–	ID Proof, Pan & Declaration Form
Foreign Tourists		within 72 hours after the notification	foreign exchange equivalent to Rs. 5,000/-	provide proof of purchasing the old notes
Person not in India	authorize in writing enabling another person in India to deposit the notes	Same as for any Indian	Same as for any Indian	person so authorized has to come to the bank branch with the old notes along with the authorization letter and a valid identity proof
NRIs		Same as for any Indian	Same as for any Indian	deposit the old banknotes to their NRO account.

It seems that baring a very few individuals, almost all in this nation have welcomed the move of the Government.  It seems to have been a well thought out scheme with almost all modalities worked out in detail.

At the time of writing this article, the initial euphoria, shock, surprise, disbelief, fear, etc. have all died down and the citizens have accepted this for many reasons, a few of which are below.

a. This was to be done long before, to root out corruption.  The virus had impacted almost each citizen, right from the local rickshawala to bribe the police constable to the highest level of defense deals etc.

b. There is no other way to handle this menace other than by making the hoarded currencies invalid.

c. This would impact only the hoarders of currency and not the common man.

d. The timing was perfect, 8pm, on a US election eve.

e. There was initial panic and no more. The establishment had made adequate arrangements to handle this.  All banks were properly and sufficiently educated and had a fair amount of money to dispense

The social media also played an effective part in this campaign post announcement by the Honorable Prime Minister.  While tons of satire and comedy made way, many useful and educating tips were also circulated.

Like the Japanese earthquake situation, citizens began to act responsibly, which is generally unseen in Indian scenario in situations like this.  It seems that the general public in fact have realized that they need to withdraw/exchange only that much needed for the time being and wait till the situation eases to withdraw/exchange the balance.  This reflects a healthy understanding of the citizen and maturity in crisis handling.

It is heartening to see that the tales of sacrifice, valor etc. in this time of crisis.  One interesting anecdote is that of my barber.  When went for an haircut, after the cut, he offered me not to pay now saying that his service is not an emergency one, and one could keep the money for immediate purchase of essentials and pay him later.  I was overwhelmed with this and appreciated his social responsibility.  Definitely he has risen very high in my eyes and would always henceforth give him that respect that he deserved for being so empathetic.

Petrol pumps and general grocery shops have been generally open in accepting the OHD notes at least up to 11th November.

It is the duty of every professional and informed citizen to educate the less informed brothers and sisters in the vicinity to prevent any panic satiation.  One good way would be to offer help to the domestic maid, drivers, security watchmen, by educating them.  On other way would be to provide them with short term loans to tide over the situations.  Assist them to exchange the notes they have before 24th November.

Some unscrupulous elements are resorting to giving the legal tender money by taking around 20% commissions.  Ie, for every 500 rupee note, the person is paid only 400/-.  The uneducated and the gullible are being cheated mainly due to their ignorance and insecurity

The senior citizens and the physically challenged are equally insecured so much so that many are rushing to the banks to deposit their little OHD notes, thereby creating tension to themselves and also to the other public who have to withdraw money.  Let us try to educate them on the scheme and the time lines, else allow them to withdraw, as the separate lines for them are not feasible at this point in time.

On the flip side, it has been criticized that the new rules make difficulties for people who keep their cash at home rather than in a bank account and for people with large rupee cash reserves who reside abroad.

However, the Government has given assurances that if legitimate reasons are provided, then there will be few, if no difficulties.

In conclusion, there might be some discomfort or inconvenience here and there for the general public.  When a change of this magnitude is underway, such discomforts are inevitable.  These are definitely not as much as our soldiers face at Siachen Glacier, the Thar Desert or the other border posts guarding our country.  It is time we also take part as citizens in this war against corruption and terrorism and do our bit also for the nation.

200% penalty on unaccounted cash deposited in Bank Account

200% penalty cannot be imposed if tax is paid on unaccounted cash in current year

Hon’ble Prime Minister, Sh. Narendra Modi on November 8, 2016 made one of his boldest move by launching an aggressive assault on black money through demonetisation of existing Rs. 500 and Rs. 1,000 currency notes. Being seen as a surgical attack on black money, fake currency and corruption, the Hon’ble Prime Minister informed his fellow countrymen that the existing Rs. 500 and Rs. 1,000 notes could be deposited in their bank accounts till December 30, 2016.

Following the news, there has been a rush in public towards deposit of existing Rs. 500 and Rs. 1,000 currency notes in their bank accounts. However, Income Tax Department through a series of press releases has warned regarding levy of penalty at 200% of the tax amount in case where amount of deposit is not in line with the income returned.

In this article, the possibility for levy of penalty under section 270A of the Income Tax Act, 1961 (‘Act’) has been analysed in case where a person has deposited his unaccounted cash in his bank account and paid due tax thereon in the return of income for AY 2017-18.

The Finance Act 2016 in order to rationalize and bring objectivity, certainty and clarity in the penalty provisions, replaced the existing section 271 of the Act and inserted a new section 270A of the Act for levy of penalty in cases of under reporting and misreporting of income.

Sub-section (1) of the new section 270A of the Act provides that the Assessing Officer, CIT (Appeals) or the Commissioner may direct that any person who has under-reported his income shall be liable to pay a penalty in addition to tax, if any, on the under-reported income. Thus, trigger point for applicability of penalty under section 270A of the Act is under-reporting of income.

Thus, in order to discuss applicability of penalty in cases where tax has been paid, it is important to first analyse what constitutes under-reporting of income.

Under-Reporting of Income

Sub-section 2 of section 270A of the Act provides that a person shall be considered to have under-reported his income, if, inter alia, the income assessed is greater than the income determined in the return processed under 143(1)(a) of the Act.

Thus, there shall be under-reporting of income only in cases where income assessed during the course of assessment proceedings would be greater than income determined in the return processed under section 143(1)(a) of the Act. Since, the income determined in the return processed under section 143(1)(a) of the Act in normal circumstances would be same as the income returned by a person, the penalty under section 270A of the Act could be levied only when income assessed would be greater than income returned by the person. This position is further clarified by sub-section 3 of section 270A of the Act which provides for manner to calculate the under-reported income.

Rates of Penalty

Sub-section 7 of section 270A of the Act provides that the rate of penalty shall be 50% of the tax payable on under-reported income.

Further, sub-section 8 of section 270A of the Act provides in a case where under-reported income is in consequence of any misreporting thereof by any person, penalty levied shall be 200% of the tax payable on such under-reported income.

Thus, even for levy of penalty at 200% of the tax payable, it is important that the there must be an under-reported income which must be in consequence of misreporting.

Levy of penalty where tax has been duly paid

As can be seen from above, for levy of penalty under section 270A of the Act, there must be under-reporting of income. Where there was no under-reporting of income, no penalty under section 270A (whether at 50% or 200%) could be levied.

Assume a person has unaccounted cash on which no tax was ever paid. Such a person deposits this unaccounted cash in his bank account in November 2016 and duly declares such additional income in his return of income for AY 2017-18. Tax at appropriate rate are paid in full on such income for AY 2017-18.

Now, his income determined in the return processed under section 143(1)(a) of the Act would include this unaccounted cash income [assuming there is no other cause for variation under section 143(1)(a) ]. When the case for AY 2017-18 would be picked up for scrutiny by income tax department, the Assessing Officer would not be able to make any addition on account ofthiscash deposited in bank account since the person would have already offered this income to tax in his return of income filed for AY 2017-18.

In such a scenario, the income assessed would not be greater than the income determined in the return processed under section 143(1)(a) of the Act (assuming there is no addition on any other account). Hence, in such cases, there would be no under-reported income. Thus, the basic condition for levying penalty under section 270A of the Act would not be triggered.

Reference is further drawn on Circular No. 25 of 2016 dated June 30, 2016 issued by CBDT while providing clarifications on the Income Declaration Scheme, 2016 (‘IDS’). In question no. 9 of the circular, the CBDT dealt with the question regarding the advantages of the IDS where past undisclosed income is disclosed as current income in the return of income to be filed for AY 2017-18 in place of declaration under IDS. The answer of CBDT, inter alia,provided for the following:-

“If anyone attempts to disclose past undisclosed income in the current year, he will have to explain the source of income and substantiate the manner of earning the said income. In case of disclosure under the Scheme, there is no need to explain the source of income.”

Thus, it may be noted that where income is disclosed in return of income for AY 2017-18, the person making such disclosure would have to explain the source of income and substantiate the manner of earning the said income.

However, even where such person fails to offer the source of such cash deposit, the Assessing Office may only declare such cash deposits to be an unexplained income under section 68 of the Act on which no slab benefit (in case of individual/HUF) or any deduction would be eligible as per section 115BBE of the Act.

However, the Assessing Officer would not be able to make any addition on account of such cash deposit as income in respect thereof would already have been offered to tax. Thus, in the absence of any under-reported income, penalty under section 270A of the Act would not be levied.

The aforementioned legal position is author’s personal view based on reasons set out hereinabove. It is pertinent to mention that litigation on levy of penalty cannot be ruled out specifically in light of the fact that the CBDT has explicitly warned against declaration of past income in current year in its clarificatory circulars on Income Declaration Scheme, 2016. Hence, before resorting to declare previously undeclared money in current year, a person is advised to independently verify the legal position with his tax advisors.