Almost two weeks have passed after the RBI requested that the public deposit or swap their pink currency notes by September 30, 2023, in order to remove the Rs. 2,000 notes from circulation.
Rs 2000 Note Withdrawal Being Compared With Demonetisation.
Even though the RBI has clarified that Rs 2,000 notes are still legal tender, unlike the old Rs 500 and Rs 1000 notes that were banned in November 2016’s demonetisation, many in the public were quick to call it “mini-demonetisation” or demonetisation 2.0 as soon as the announcement was made.
The RBI has categorically stated in a press release that the exchange of Rs 2,000 notes into smaller denominations is a part of the “Clean Note” policy of the RBI and is not demonetization. Even after September, Rs. 2,000 notes will be accepted as payment.
The largest lender in India, SBI, recently acknowledged that since the process began last week, it has already received deposits totaling Rs 14,000 crore in Rs 2000 notes. But what about the taxation of public deposits?
Therefore, let’s find out whether the large or small deposits are taxable.
Are Rs. 2000 note deposits taxable?
According to income tax regulations, people who deposit cash over Rs. 2.5 lakh or senior citizens who deposit cash over Rs. 5 lakh may be subject to inspection. Considering that the money comes from household savings, cash withdrawals, prior income, etc., any amount within the specified limit will be exempt from scrutiny, according to Cleartax. Deposits above the aforementioned thresholds will be subject to assessment by the assessing officers for those without business income.
In the current situation, genuine cash deposits in bank accounts in the amount of Rs 2,000 can also be explained by regular household savings, prior cash withdrawals, cash gifts from blood relatives, as gifts received on special occasions, or cash sales in the case of proprietors and other businesses, provided that such claims are backed by genuine documentary evidence.
According to income tax regulations, businesses are permitted to receive up to Rs 2 lakh in cash from a single person in a single day. Cash sales in Rs 2,000 notes have increased dramatically since the RBI announcement in all food delivery apps, gas stations, malls, grocery stores, hospitals, jewelry stores, etc.
Once the businessperson confirms the legitimacy of cash sales in 2000-note denominations made on or after May 19 and even after September 30 with all necessary supporting documentation, such as sales invoices, bank statements, buyer confirmations, GST returns, and connections between such cash sales and purchases and stocks, etc. , then the tax authorities cannot disregard or reject the authenticity of making cash deposits out of such cash sales merely because there is a difference in the ratio of cash sales from one period to another. According to the Mint report, no business can have a set pattern of sales.
Additionally, taxing cash deposits made as a result of a businessman’s cash sales as unexplained cash credits would amount to double taxation and is not permitted once the businessman has declared his cash sales as his business income.
Therefore, despite the RBI’s announcement, those who can legitimately explain the sources of cash deposits of Rs 2,000 notes shouldn’t panic and should continue depositing their hard-earned money into their bank accounts while maintaining all supporting documentation that can attest to the legitimacy of such cash deposits.
Large Deposits To Be Notified To The Income Tax Department.
The report stated that as part of the statement of financial transactions (SFT) they are required to submit to the tax authority each year, banks will be required to notify the income tax department about large cash deposits of Rs 2,000 in currency notes or more.
The precise currency value of the deposits does not have to be stated, though. Under the condition of anonymity, two people with knowledge of the development said that this action would bring sizable cash deposits made during the ongoing phase-out of 2,000 notes under the scrutiny of tax officials, who routinely comb through the data to detect tax evasion. The reporting thresholds are set at 10 lakh for term and savings deposits and 50 lakh for current account deposits.
A third person, who also reportedly spoke on the condition of anonymity, added: “To be sure, this reporting system has been around for a long time and is not a new provision in light of the RBI’s decision to recall 2,000 notes.”.
Each person is allowed to keep some cash on hand in case of emergencies. But can there be a genuine reason for anyone to maintain large piles of cash, especially high-denomination notes, instead of trying to earn interest? So, that question will be asked,” one of the two individuals mentioned above said under the condition of anonymity. The third person, who is knowledgeable about the operations of the tax department, said it might be premature to predict whether sizable cash deposits after the withdrawal of 2,000 notes reported by banks will draw attention. “Let people use their right to exchange or deposit cash. Spooking the populace is improper, the person said.