A week after Prime Minister Narendra Modi took the country by surprise by declaring that the Rs 500 and Rs 1,000 notes in circulation were no longer a legal tender, banks, ATMs and post offices have seen serpentine queues with people thronging to change their old currency notes for new. Yet, despite various clarifications by the government, confusion reigns supreme, Let’s look at some very basic questions that people may still have about changing their money.
How much money can I exchange at a time? Can I go just once to exchange my money?
The present limit on exchanging your old notes for new (not via your bank account) is Rs 4,500. While earlier, the government had not stated any cap on the number of times an individual can do this, on Tuesday, it said that the bank or post office will apply indelible ink on your finger. This effectively limits such withdrawals by an individual to just once. The government’s rationale behind the move is that people were coming multiple times to exchange their old currency, adding to the menace of overcrowding. Moreover, the exchange facility has apparently also been misused by people hoarding large amounts of cash to launder money using conduits for a fee. In fact, news reports point to a large illegal racket thriving around this. The government hopes that by marking those who have already exchanged their currency out, such a practice can be curbed.
How much money can I deposit in the bank account and how much can I withdraw?
There is no limit on the amount of money you can deposit in your own bank account. While earlier, the government had imposed both daily and weekly withdrawal limits, now there’s just one withdrawal limit of Rs 24,000 a week, per account.
What’s the deal with the Rs 2.5 lakh threshold on deposits which has been talked about?
As mentioned above, technically, there is no cap on deposits. As long as you have a bank account, you are free to deposit any amount. But, the government has said that any deposit made over and above Rs 2.5 lakh will be taxed. Also, any such deposit will come under scrutiny for a possible income mismatch. If the depositor is unable to rationalise the source of income with the money deposited, he or she could face a penalty at 200% of the tax rate.
So, assuming a person deposits Rs 10 lakh, and is unable to account for the source of income. In that case, not only would he have to pay Rs 3 lakh as 30% tax, he would also have to cough up twice that or Rs 6 lakh as penalty. Thus, effectively, he would end up paying Rs 9 lakh to the exchequer, or 90% of the total amount.
So, does that mean that I will escape scrutiny if I deposit anything below Rs 2.5 lakh?
Now, this could be tricky. Although the Rs 2.5 lakh threshold has been kept so as not to inconvenience housewives and small traders, nothing really stops the authorities from putting any unusual spurt in deposit amounts under the lens. Since your bank account is linked to your PAN, the government already knows what your taxable income has been.
Now, let us say your declared annual taxable income is Rs 2.5 lakh (which means you are in the zero tax bracket), and you suddenly deposit Rs 2.5 lakh cash into your account after 8 November, you could come under the taxman’s scrutiny. Even if you have other sources of income, say agriculture, on which there is no tax, you are bound by the law to declare the same when you file your annual returns. So, who attracts scrutiny and who escapes might well be a function of how much you earn.
Whether you will be scrutinised or not will also depend on the manner in which you deposit cash. For instance, someone with Rs 3 lakh depositing Rs 2.5 lakh may be scrutinised while someone with Rs 30 lakh putting in Rs 2.5 is unlikely to, unless his/her cash withdrawals in the recent past do not match with the deposit.
What if I have multiple bank accounts? Can I deposit Rs 2.5 lakh or more in each and get away?
Unlikely. You see, your bank accounts are all linked to your PAN, and possibly also seeded with your Aadhaar number. Moreover, the income tax department has, just last week, introduced a new feature on its portal, where, taxpayers logging into the e-filing portal, will have to explain all the cash deposits made in their various bank accounts linked to their PAN. So, if you thought you could get away by depositing small amounts in different accounts to park your unaccounted for wealth, that window too is now closed.
But I hear that Jan Dhan accounts are rampantly being used to park black money?
Yes, and the government is aware of this. Reports say to try and beat the system, the wealthy are paying Jan Dhan account holders a ‘commission’ to park up to Rs 49,000 (as amounts above Rs 50,000 require the depositor to produce a PAN card, and most Jan Dhan account holders do not possess one), with an intention of later withdrawing the same in cash. As a result of this, a large number of Jan Dhan accounts have suddenly seen a spurt in their deposits. The government has said that it is watching and monitoring this closely. Having said that, there could be a significant number of genuine cases, where the actual account holder has deposited his or her money, saved over time. Therefore, although the government has said that those seeking to launder money via this route will be found out and brought to book, that might be easier said than done, considering the sheer number of such accounts.
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