It is not advisable to deal in cash and borrow or lend by cheque or bank draft even if it is an informal loan to your friend or relative more than Rs 20,000 in cash or you may be levied penalty to the tune of the loan amount . And when someone deposit money in your bank account, it is very important to understand the tax implications of this. This article covers tax implication on taking and giving cash, especially above Rs 20,000, Cash Deposit reported to Income Tax,Deposit Money into the bank account and tax implications of giving gifts.
Table of Contents
Taking or giving Cash above Rs 20,000
There are situations when you need to borrow money urgently and a cheque will take two to three days to clear. For example you have medical emergency . In such situations people do borrow cash from friend or neighbour or relative to repay it later. But be careful if you are taking or giving cash above Rs 20,000.
From 1 Jun 2015, Section 269SS of the Income Tax Act prohibits any person from taking or accepting from any other person any loan or deposit in any other way than by cheque or bank draft where the amount is more than Rs 20,000. Similarly, Section 269T prohibits the re-payment of any loan or deposit other than by cheque or bank draft, if the amount is more than Rs 20,000. Earlier, this clause pertained to commercial loans, but now it has been extended to loans between individuals as well. In such cases the I-T assessing officer can levy penalty as high as the amount itself. The whole idea behind this clause is to counteract tax evasion, to trace the source of cash. If the money is unaccounted for, then those involved will have to pay tax.
Section 269SS : don’t take cash above Rs 20,000
From Income Tax Law Section 269SS modified in 1 Jun 2015
269SS. Mode of taking or accepting certain loans, deposits and specified sum.No person shall take or accept from any other person (herein referred to as the depositor), any loan or deposit or any specified sum, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, if,
| (a) | the amount of such loan or deposit or specified sum or the aggregate amount of such loan, deposit and specified sum; or | |
| (b) | on the date of taking or accepting such loan or deposit or specified sum, any loan or deposit or specified sum taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), the amount or the aggregate amount remaining unpaid; or | |
| (c) | the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b) |
Examples :
In all the following cases loan taken during earlier years is assumed to be unpaid during current year
- Sanjay gives a loan of 10,000 in cash in last year and gives another loan of 10,000 in cash in current year…. Then the limit is applicable.
- Urmil gave 10,000 rupees loan by cheque to Praveen during last year and in current year he gave another 10,000 in cash. This section will be applicable as the total amount equals to 20,000. Here it’s not matter that the loan taken earlier is by cheque. But the penalties are imposed on the amount accepted in cash only.
- Shaheen gave a loan of 15,000 by cheque to biswas during last year and gave another 5,500 in cash in current year,then also this section would be applicable.
Section 269T : don’t give cash above Rs 20,000
From Income Tax Law Section 269SS modified in 1 Jun 2015
No branch of a banking company or cooperative bank and no other company or cooperative society and no firm or other person shall repay any loan or deposit made with it otherwise than by an account payee cheque or account payee draft drawn in the name of the person who has made the loan or deposit if :
(1) The amount of the loan or deposit together with interest payable there on is Rs.20,000 or more or
(2) The aggregate amount of the loan or deposits held by such person with the branch of a banking company or cooperative bank of other company or cooperative society or firm or other person, either in his own name or jointly with any other person on the date of such repayment together with interest if any payable on such loan or deposit is Rs.20,000/- or more.
This section won’t be applicable for repayment of any loan or deposit taken or accepted from
Cash Deposit reported to Income Tax
Any cash amount beyond Rs. 49,995 has to be deposited with a PAN Card only. Banks dont accept Rs. 50,000 deposit by cash or cheque without the PAN info on the deposit form.
There is no amount restriction for cheque deposit into an account with PAN card but any amount beyond Rs. 10,00,000 has to be reported to Income tax dept. There might be charges for deposit which might differ from bank to bank
- Cash Deposits made in excess of Rs 2.5 Lakh from 9th Nov 2016 to 30th December 2016 in accounts (other than current accounts) to be reported in AIR (Annual Information Report. Earlier limit for AIR reporting was Rs 10 lakhs or more in one financial year.
- Cash Deposits made in excess of Rs 12.5 L from 9th Nov 2016 to 30th December 2016 in current accounts to be reported in AIR (Annual Information Report). Current accounts were not part of AIR reporting earlier
If you are one with a hoard of cash in your hand, you should deposit that in banks only if you are able to account for the source of income, says tax experts. Depositing unaccounted money into banks would open up one to scrutiny by the income-tax (I-T) department.
Any unaccounted income would attract penalty under Section 270A of the Act, which can range from 50- 200% of evaded tax. The tax defaulter could also attract prosecution under Section 276C of the Act, with imprisonment from three months to seven years with fine. The penalty rate was revised from 100% to 300% in the last Budget to reduce litigation from assessees. The 50% penalty will be levied in cases of under-reported income, while 200% in case of misreporting income
Deposit Money into the bank account
After demonetization the government said it will monitor bank accounts, especially those artisans, workers, housewives and the poor, and prosecute anyone allowing the parking of illegal wealth of others. Zero-balance accounts opened under the Jan Dhan scheme will also be monitored after a surge in the deposits of many of such accounts. Action will be taken against the person depositing the money and the account holder. So before you deposit the money in someeone’s account please do understand the taxation on Gifts.
As per the Income Tax Act, 1961 if the value of gifts received is more than Rs 50,000 a year, then such amount is taxed as income in the hands of the receiver. These gifts may be in any form – cash, jewellery, movable and immovable property, shares etc.
If you are one with a hoard of cash in your hand, you should deposit that in banks only if you are able to account for the source of income. Depositing unaccounted money into banks would open up one to scrutiny by the income-tax (I-T) department.
Depositing Money into other’s accounts due to Demonetization
Government on 18th Nov 2016, cautioned Jan Dhan account holders, housewives and artisans that they will be prosecuted under the I-T Act for allowing misuse of their bank accounts through deposit of black money in Rs 500/1,000 notes during the 50-day window till December 30. The directive comes against the backdrop of reports that some are using other persons’ bank accounts to convert their black money into new denomination notes. In some cases, even rewards are being given to account holder for allowing such misuse.
The government had earlier said deposits up to Rs 2.50 lakh in bank accounts would not come under tax scrutiny as it is within the tax exemption limit. In the case of Jan Dhan account, the holder can deposit up to Rs 50,000. However, the income tax department has noted that people are under impression that no action will be taken for deposits up to Rs 2.50 lakh during November 9-December 30.
The ministry said “such tax evasion activities can be made subject to income tax and penalty if it is established that the amount deposited in the account was not of the account holder but of somebody else. Also, the person who allows his or her account to be misused for this purpose can be prosecuted for abetment under the Income Tax Act”.
The government has earlier said black money deposited in bank accounts during the 50-day period will be subject to tax, interest and 200 percent penalty. It asked people not to be lured into conversion of black money and become a partner in the crime of converting black money into white through this method.
When you take or get Gifts
As per the Income Tax Act, 1961 if the value of gifts received is more than Rs 50,000 a year, then such amount is taxed as income in the hands of the receiver. These gifts may be in any form – cash, jewellery, movable and immovable property, shares etc. Our article Gift and Income Tax Return discusses it in detail.
What is Gift?
As per the Income Tax Act, 1961 if the value of gifts received is more than Rs 50,000 a year, then such amount is taxed as income in the hands of the receiver. These gifts may be in any form – cash, jewellery, movable and immovable property, shares etc. However, this rule is not applicable if your relatives, as specified by Income tax law, present the gifts.
- Spouse
- Children
- Your and your spouse’s brothers and sisters
- Brothers and sisters of your parents
Are all Gifts Taxed?
No. Only in following situation your gifts are not taxed i.e you are exempt from tax
- monetary value of all gifts received don’t add up to Rs 50,000.
- Received from a relative
- Received on occasion of marriage
- Received by way of a will or inheritance
- Received in contemplation of death of the payer
- Received from Local Authority
- Received from a fund, foundation, university, or other educational institution, hospitals, or any trust of institution defined in Section 10(23C)
- Money Received from a charitable Institution registered under section 12AA
Though there are different views on on whether to show the money in ITR or not. But many experts suggest show it as Income from Other sources.
What is Clubbing of gift income
- Cash or asset gifted by individual to their spouse is exempt from gift tax, but any income earned from this gift in the form of interest or house rent is taxable. The spouse is charged for such earnings from gift, if they have taxable income or the income is clubbed with that of donor.
- Similarly, if a father-in-law transfers cash or asset as gift to daughter-in-law, any income earned from this gift will either be taxable in her hands or clubbed with father-in-law’s income.
For example You make a Fixed Deposit(FD) of Rs 2 lakh for your unemployed wife and interest income will be added to your income. If she reinvests this interest in another FD and gets 7% interest on it for 2016-2017. The amount of interest income will be considered your wife’s own income. Our article Fixed Deposit in Name of Wife: Clubbing,Tax,TDS, ITR,Refund discusses it in detail.
In the above example If you had gifted to unemployed sister, both original interest on gift and subsequent interest will considered your sister’s income and not clubbed with yours.
How to keep getting Gifts legal and stress-free
- Keep documentation available for the gift given or received, including gift certificate.
- When movable asset is received, ensure the donor provides a signed and stamped gift deed that has been attested by two witnesses.
- When immovable property is gifted, ensure the donor registers the property in your name and provides a signed gift deed that has been attested by two witnesses.
- If you’ve loaned your friend something in excess of Rs 50000 which he/she returns in a few months. Have a IOU note drawn or keep proof in the form of bank statements to prove this wasn’t a taxable gift transaction.
- You may have used your credit or ATM card to make a payment for a friend or colleague and they have transferred the amount to you later on. Keep the bank slips handy to prove this wasn’t a taxable gift transaction.
Related Articles:
- Tax and penalty on Cash Deposit due to Demonetization
- Transactions reported to Income Tax Department
- Gift and Income Tax Return
- Clubbing of Income
- Fixed Deposit in Name of Wife: Clubbing,Tax,TDS, ITR,Refund
