Income Tax Rules for Verification of Cash Deposit

Narendra Kumar

27 Feb, 2019

It has been observed that black money is growing at a higher pace which creates a direct impact on the Indian economy. Verification of the cash deposit is necessary to get control over the black money. After demonetization, there is a certain restriction on the deposit of a huge cash amount in the bank. Income Tax department made provisions for verification of cash deposits. If anyone deposits cash amount in excess than the amount prescribed under the guidelines of Reserve Bank of India, then the income tax department is authorized to make verification of such a cash deposit.

In this blog, we will discuss Income Tax rules for verification of cash deposit in the bank.

Definition of cash deposits

Cash deposit is a process of keeping money in a bank or a savings account either through money transfer, ATM or through a bank teller (an employee of the bank). In general terms, cash deposit refers to an activity of placing money in a financial institution for protective custody. After completion of the transaction, a person can withdraw the cash.

Why Verification of Cash Deposit is necessary?

Verification of the cash deposit is very necessary for proper Government records. In India, it is found that some people don’t pay income tax to the government. Generally, some People in their bank statement as well as in tax return never declare the amount which is meant for tax purposes.

Money on which proper tax is not paid to the Government is considered as Black Money. Earlier, People without explaining their source of income made a huge number of cash deposits in the bank but now the same is prohibited. Nowadays the concept of Black money is increasing in India, thus to eradicate this concept, verification of cash deposit is necessary.

Read our article:Section 145 of the Income Tax Act,1961

Provisions of Income-tax Act, 1961 for verification of Cash deposit

The Government of India made provision for verification of cash deposit. Under section 133(6) of the Income Tax Act, 1961, Assessing Officer has the power to call for information that is relevant for verification of cash deposits under “Operation clean money”.

Central Board of Direct Taxes (CBDT) vide Instruction Number 4 of 2017 dated 21.02.2017 issued “Standard Operating procedure” and each Assessing officer has to follow this procedure for verification of cash deposit.

CBDT authorized every Assessing officer/AO to issue notice u/s.133(6) of the Income Tax act for online verification of cash deposits.

What is Operation Clean Money?

Income Tax Department on 31st January 2017 launched “Operation Clean Money” to investigate the tax evaders and for e-verification of large cash deposits made from 9thNovember-30th December 2016. The main aim of this Operation is to verify the cash transaction status of the taxpayers during the Demonetization period.

It also aims to take proper legal action, if the cash transactions do not match with the income tax statement of the taxpayers. In the first phase, 18 lakh people were identified whose cash transaction and cash deposit did not appear to be in with their profile. Through Operation Clean Money, it was found that those 18 lakh people did not pay any income tax to the Government. The Purpose of launching Operation Clean money is to eliminate black money.

Issuance of Notice u/s.133(6) for online Verification of Cash Deposit.

As stated above, AOs are authorized to issue notice u/s.133(6) of the Income Tax Act, 1961 for online verification of cash deposits. If AO believes or finds that cash deposited by any person is not in line with the business of such person, then AO can issue notice u/s.133(6) for verification of cash deposit.

Where AO has reason to believe that the closing cash balance of any person as on 31st march of 2016 was increased by revising the return transaction in account books, then also AO can verify the cash deposit. However, each and every AO has to keep into consideration certain guidelines while issuing such notices u/s.133(6). Following are the guidelines:

• In case, a person under verification fails to file an Online response, then AO after obtaining approval from Commissioner and Director of Income Tax can issue notice u/s.133(6) of the Income Tax Act.
• Notice has to be generated through the ITD system (Intelligent Technologies and Design System) only.
• AO shall not issue any hand-written or typed notice for online verification of cash deposits.
• The concerned person against whom AO issued notices u/s.133(6) within the stipulated period has to furnish response only through online mode.
• AO requires to make verification under Operation Clean Money only through the online verification portal.

Verification of the PAN card if cash deposit exceeds Rs.25 Lakh

After demonetization, the Government of India declared that no one without updating his/her PAN card with the bank is allowed to make multiple cash deposits in bank accounts. Before, 9th November 2016, the cash deposit limit without updation of the PAN card was Rs 50,000. Circular issued by the Government stated that where cash deposit made by any person between 9th November to 30th December 2016 exceeded Rs.25 Lakh, then the PAN card of such person must be verified.

Online Verification of Cash deposit

Considering continuous growth in technology, the Government of India made provision for online verification of cash deposit. Online verification saves the time of tax authorities and taxpayers. Online verification. Online verification is used to compare demonetization data with information available in the Income Tax Department database. Through online verification, it is very easy to identify taxpayers where the cash deposits and cash transactions do not seem to be similar in line with the taxpayer’s profile. For verification of the cash deposit, the taxpayer has to register himself/herself with the e-filing portal.

Online Registration of Taxpayer in the e-filing portal

• For registration, the taxpayer needs to log in to e-filing portal^[1] as prescribed by the Government.
• After login to the portal, the taxpayer has to choose the option of “Register yourself”
• It is necessary for the taxpayer to enter the details in the registration form and to click the option of “Submit”.
• Upon submission of the registration form, the taxpayer successfully registered himself/herself.

Viewing Information

Information relating to cash deposits will display to the PAN holder in the e-filing portal.

A taxpayer can view the cash transaction information in the following ways:

• It is necessary for the taxpayer to log in to the e-filing portal.
• After login, the taxpayer needs to choose the option of cash transactions under the compliance segment.
• The details of the cash deposit transaction will be displayed.

Submission of Response

The taxpayer has to confirm that the bank account relates to the PAN of the taxpayer. Where the taxpayer confirms that the bank account relates to the taxpayer, then he/she has to provide details in this regard. The taxpayer needs to give complete details of the source of cash.

Verification of Case

Based on risk criteria, some cases will be selected for verification. Where the case is selected for verification purposes, then request additional information and its response will also communicate to the taxpayer electronically. The information on the online portal will update on receipt of new information, response and data analytics.

Conclusion

The taxpayers, as well as persons who are willing to make a cash deposit in the bank, must have complete details of the source of cash. It is necessary to verify cash deposit if such cash transaction exceeds the amount than the amount as prescribed by the Reserve Bank of India. To eliminate black money from Indian Society, verification of cash deposit is essential.No One can evade a single tax if the proper guideline is made for verification of cash deposit.

Read our article:All Types of Income Tax Return Filing In India