NEW DELHI: If you made a large cash deposit to your bank account after demonetisation, prepare to explain it to the taxman, but tagging the money as agricultural or business income might not work unless you have all the paperwork in place. And if you are caught out with a false claim, you could end up paying taxat the rate of roughly 85%.
Keeping in mind the likelihood of tight scrutiny and the penal tax rate of about 85%, chartered accountants said, it would be wise to come clean under the newly announced Pradhan Mantri Garib Kalyan Yojana (PMGKY), 2016.
Declarations under PMGKY will be taxed at the rate of 50% and half of the remaining amount will be locked up for four years in interest-free fixed deposits, but that is still better than losing 85% of the sum to the taxman. Chartered accountants TOI spoke to said the government is likely to ask all those who have made large deposits to disclose their income and pay tax by January 2017. Claims of windfall gain or a sudden increase in sales may have to be corroborated with sales tax or service tax receipts, said Vikas Vasal, a partner at KPMG.
Deposits explained as agricultural income will be in for stricter scrutiny as there is no tax on this income category and it is commonly used for money laundering.
The recently amended income tax Act requires all ‘farmers’ claiming exemption to produce mandi receipts for sale of their produce. To declare agricultural income, a person now needs to submit a certificate from the gram sevak and circle officer of their area stating the sowed acreage, purchase receipts of seeds and fertilisers, and also sale receipts. Businesses claiming a spurt in sales to explain their large deposits will also have to show higher sales tax and service tax payouts as evidence. If their documents are in order, they will need to pay tax at the usual rate of 35%. But all of these supporting documents are hard to get retrospectively, said Vivek Jain, a senior chartered accountant.
The first few days after demonetisation saw hectic gold buying in old notes for money laundering, so the tax authorities will also be watching jewellers’ returns very carefully. Jewellers who have not charged 1% advance tax under the tax collection at source (TCS) scheme for purchases of Rs 5 lakh or more could be in trouble. So could those who have not maintained PAN details for cash purchases of Rs 2 lakh or more.
The tax authorities are considering verifying gold sales claims from the stated buyers, and also checking the date and time stamps on video footage from shops to confirm jewellers’ claims.
TOI has learnt that the tax department is sending unnamed returns of individuals and companies to a panel of chartered accounts for assessment, and those that appear suspicious will be examined threadbare