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On November 8, 2023, Prime Minister Modi announced that Rs. 500 and Rs. 1000 notes would no longer be legal tender, as part of the government's effort to curb corruption and black money. This decision has created a lot of confusion and panic among the public, especially those who have cash savings at home or in their business. In this guide, we will explain what you need to do with your cash savings, and how to avoid tax troubles.
The government recognizes the need for small cash savings held by individuals like housewives, salaried persons, and workers. Deposits up to Rs. 2.25 lakhs in your bank account won't raise any eyebrows from the Income Tax Department. So, if you've diligently saved that cash from household budgets or salaries, breathe easy; you can deposit it without worry.
While there's no official limit on cash deposits, depositing large sums, exceeding Rs. 2.5 lakhs, attracts the Income Tax Department's scrutiny. They'll compare the deposited amount with your declared income on tax returns. Any discrepancies could trigger penalties and even prosecution for suspected tax evasion. Remember, honesty is the best policy!
Before depositing hefty amounts, ensure your KYC (Know Your Customer) compliance is complete and you have a valid PAN (Permanent Account Number). This is especially crucial if you're depositing sums exceeding Rs. 50,000. Without them, the bank will not accept your deposit, causing unnecessary delays and frustration. Moreover, A PAN card is a mandatory requirement for opening a bank account these days.
Business owners and professionals face a slightly different scenario. Maintaining proper records of your business income and cash flow is important. These records serve as evidence of the source of your cash when depositing it in the bank. Be prepared to explain the source of any large cash deposits, especially those exceeding Rs. 2.5 lakhs. Transparency is key to avoiding unnecessary inquiries from the authorities.
If you fail to adequately explain the source of your deposited cash, especially large amounts, the Income Tax Department can take various actions. These may include:
There's no official limit on cash deposits. However, deposits exceeding Rs. 2.5 lakhs may draw the Income Tax Department's attention and scrutiny.
Deposits up to Rs. 2.25 lakhs in your bank account are generally considered acceptable and shouldn't raise concerns.
Ensure your KYC (Know Your Customer) compliance is up-to-date and have a valid PAN (Permanent Account Number). These are especially vital for deposits exceeding ₹50,000, and opening a new Bank account.
The deadline for filing belated returns is 31 December. Ensure you file your income tax returns timely to avoid penalties.
