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Mumbai: The Reserve Bank of India last week announced to withdraw Rs 2000 banknotes from circulation but said it will continue to remain as legal tender. The central bank has advised other banks to stop issuing Rs 2000 denomination banknotes with immediate effect. However, the RBI said citizens will continue to be able to deposit Rs 2000 banknotes into their bank accounts and/or exchange them into banknotes of other denominations at any bank branch up to September 30, 2023.
After the RBI announcement, the withdrawal of Rs 2,000 notes has caused confusion among bank customers about its implications. As per the directive from the Reserve Bank of India (RBI), individuals need to deposit their Rs 2,000 banknotes into their bank accounts or exchange them for notes of other denominations at any bank branch before September 30, 2023.
Even as there is a one-time limit of Rs 20,000 and no overall limit on cash deposits in bank accounts, tax experts stress the importance of being aware of reporting requirements and the potential scrutiny from the income tax department.
Individual taxpayers need to know that those who have a significant amount of cash at home and want to deposit it in a bank account should maintain accurate records and documentation to substantiate the source of the funds. This can help address any concerns that may arise during the reconciliation process.
Speaking to Business Today, Neeraj Agarwala, Partner, Nangia Andersen India, said the cash deposits in bank accounts are subject to reporting requirements and the high-value cash deposits are reported by the bank in the Statement of Financial Transactions (SFT) to the income tax department.
He further added that the income tax department utilises the SFT statement to reconcile with the income of the individual declared in the income tax return. He said in case where discrepancies are found, the tax department may issue a notice to the depositor for further information or clarification.
When the individual deposits significant cash, there is a possibility of drawing the attention of tax authorities and if the amount of deposits does not align with the reported income in your Income Tax Return, it could result in a notice from the income tax department.
Tarun Kumar Madaan – Tax Head at Coherent Advisors told Business Today that the notice from the I-T Department would seek clarification regarding the source of these cash deposits.
Therefore, if you are depositing substantial amounts of cash into your bank accounts, it is crucial to maintain a record of the source of this cash. Failure to do so may leave you unable to provide satisfactory answers to potential notices from tax authorities seeking clarification on these deposits,” Madaan said.
He further added that if the taxpayer fails to explain the nature and source of the amount deposited in the account, or if the explanation offered is deemed unsatisfactory, the said amount may be treated as unexplained income for that previous year.
On Sunday, the State Bank of India (SBI) said the customers will not be required to submit any ID cards or fill out any requisition forms to exchange their Rs 2000 currency notes. They however would be allowed to exchange a maximum of ten currency notes of Rs 2000 at a time, according to a communication shared by the SBI with all its circles.
SBI, in its communication with all the circles, also clarified its May 19 Annexure III – a requisition slip having dedicated columns for details of customer’s identity proof, now stands withdrawn with immediate effect.
“Please arrange accordingly and extend all cooperation to members of the public so that the exercise is conducted in a smooth and seamless manner without any inconvenience to the public,” SBI said in its communication.
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