Housewives, farmers and those whose annual income is within the tax exemption limit may not be hounded by tax authorities for depositing up to Rs 2.5 lakh of the now-defunct higher denomination currency notes in bank accounts, a top government official said on Wednesday. After withdrawing Rs 500 and Rs 1,000 notes from circulation, the government allowed individuals to deposit the same in their bank accounts till December 30 and get smaller denomination ones or new Rs 500 and Rs 2,000 bank notes.
These deposits, however, will be scrutinised to catch tax evaders and black money holders. But those falling within the income tax exemption bracket Rs 2.5 lakh need not worry regarding their cash deposits in banks except for suspicious cases, the official said. In a surprise move, Prime Minister Narendra Modi last night announced demonetisation of Rs 1,000 and Rs 500 notes with effect from today to fight the menace of black money, fake currency, corruption and terror financing.
“Housewives can deposit up to Rs 2.5 lakh and pay no tax. There could be problem if one goes to deposit Rs 20 lakh,” the official said. “Tax officials are not going to go after those who deposit Rs 2-3 lakh, but those who are going for high-value deposits, disclosures will be sought by the tax department.”
Listing three major positives of the government’s move, the official said over medium to long term, it will help increase official size of the economy, improve tax collection and provide more resources to banks for onward lending. “It will have an impact on inflation as well as tax buoyancy. Cash for lending will also increase. Mid-term both direct and indirect taxes will go up,” he said.
“Official size of the economy will increase dismissing fears of cash crunch. Instead of spending cash, you can spend through bank account, cheque, or electronic means… For smooth replacement, cash for cash will be rationed because if you allow an indefinite amount, there could be a run-on the banks.
According to a source, the entire replacement currency will be there over the next 3-4 weeks. On the rationale of introducing new Rs 2,000 notes, the source said since 86 per cent of the high-value currency was lying idle, there was a need to replace the old with the new.