Notification regarding “Deposits exceeding Rs 5000” – An ill-timed, ill-conceived idea

tax terrorism demonetisation demonetization

Image Courtesy: Quartz

Today early morning, the Government issued a shocker of a notification, wherein it came up with a random and arbitrary set of rules that raise direct questions on the integrity of people depositing more than Rs. 5,000 in their own bank account from today until 30th Dec 2016.

Let’s get a few things clear here, we are ardent supporters of Demonetization, but are against Tax Terrorism which will crop up for honest tax payers. In fact, the tone and tenor from Day One has been a) curbing corruption, b) fighting terrorism and fake notes, and c) moving to cashless economy; with which digitization meant increased tax base resulting in moving many untaxed transactions into tax net. However, I am completely against today’s notification.

Lets rewind a bit; the Ministry of Finance came with a notification 3407(E) dt. 8th Nov 2016 which called for demonetization and gave various concessions and timeline for depositing money in the bank. The timeline for depositing the old currency in the bank account is 30th Dec 2016. As per the notification specifically, clause 2(iii) stated:

“there shall not be any limit on the quantity or value of the specified bank notes to be credited to the account maintained with the bank by a person, where the specified bank notes are tendered; however, where compliance with extant Know Your Customer (KYC) norms is not complete in an account, maximum value of specified notes as may be deposited shall be Rs. 50,000”

What the above Rule simply meant was that you may deposit whatever old notes you have in the banks account unto 30th Dec 2016 and be relieved. Further, the government was mindful of the tax implication and possible tax terrorism which might surface, hence they modified the AIR rules as under:

In fact, the government amended the AIR (Annual Information Return) notification stating that:

  1. Deposits upto Rs. 50,000 one time and on aggregate (from 8th Nov 2016 to 30th Dec 2016) less than Rs. 2,50,000 in savings would not fall under AIR purview
  2. Deposits upto Rs. 50,000 one time and on aggregate (from 8th Nov 2016 to 30th Dec 2016) less than Rs. 12,50,000 in current account would not fall under AIR purview

You may ask, why are AIR regulations significant? AIR norms ensured that RED FLAGS are raised for deposits exceeding Rs. 50,000 per day and deposits where cumulative amount exceeds Rs. 2,50,000. Further, the Government stated that there will no unnecessary tax terrorism and people depositing money less than Rs. 2,50,000 need not worry. All these rules are meant for what we call the big fishes.

 So, the Government was staying by its initial stance of “It is your money, and you should not be questioned for depositing in your account”.  

However, today, Government has come with two sets of notifications one from Ministry of Finance and one from Reserve Bank of India wherein the Notification 3407(E) dt. 8th Nov 2016 and vide notification SO4806 (E) dt., 17th Dec 2016 added two clauses to the same as under:

In clause (iii) as mentioned above, the following Proviso shall be added:

“Provided that the deposit upto the amount of Rs.5000/- shall be made directly into such account and the rest of the amount, if any, shall be subject to such conditions as the Reserve Bank of India may specify:

Provided further that the deposit of an amount exceeding Rs.5000 shall be made only once per account until 30th December, 2016;”

“(iiia) there shall not be any limit on the quantity or value of the specified bank notes that are tendered for payment and deposit made under the Taxation and Investment Regime for the Pradhan Mantri Garib Kalyan Yojana, 2016;”

Further to the above notification, RBI issued a notification stating:

“Tenders of SBNs in excess of Rs. 5000 into a bank account will be received for credit only once during the remaining period till December 30, 2016. The credit in such cases shall be afforded only after questioning tenderer, on record, in the presence of at least two officials of the bank, as to why this could not be deposited earlier and receiving a satisfactory explanation. The explanation should be kept on record to facilitate an audit trail at a later stage. An appropriate flag also should be raised in CBS to that effect so that no more tenders are allowed.”

When you read both the above Notification the following things appear:

  1. You may deposit from now onwards i.e. from 19th Dec 2016 up to 30th Dec 2016, any amount more than Rs. 5,000 only ONCE.
  2. If you are depositing amount more than Rs. 5,000 then
    1. You must explain to Bank officer on record why you have not deposited the monies till date
    2. You should give a “satisfactory explanation” for not depositing the monies
    3. Your reply will be an audit trail for further matters

The word ‘satisfactory explanation’ is quite arbitrary, and can cause wide range of interpretation and give scope for questioning even genuine transactions.

Frankly, this is the Biggest FLIP FLOP or an event creating an environment of TAX TERRORISM. In fact, this notification is against the initial government stand wherein it said that you may deposit any of your own money in your bank account until 30th Dec 2016, without fear. So, today’s notification amounts to SHIFTING OF GOAL POST, wherein the Government is back-tracking from its initial stance of allowing people to deposit money in their own account until 30th Dec 2016. In fact, as per original notification, the government stated you may convert your old currencies, until 31 Mar 2017 in designated RBI branches. This was fair stance; but today’s move is invalidating this stance, and making the whole notification sound arbitrary and out of order from the initial stand.

Well, you may ask or argue that what was everyone doing until say 19th Dec 2016 and why was money not deposited. A simple answer to that is, the Government has framed a deadline until 30th Dec 2016, so one may deposit money until 30th Dec 2016 close of business hour. You cant set a deadline and suddenly change it to suit your own convenience. It is highly random.

This move will result in more power to bankers and Income Tax officials who may harass the individuals.

Why am I saying there will be tax terrorism?

Firstly, the government has not yet stated the minimum amount which will not be subjected to tax; it is frankly an interpretation. Moreover, today’s notification creates a doubt whether all deposits IN EXCESS OF RS. 5,000 would be subject to SCRUTINY. If they are subject to SCRUTINY or the depositor has to explain the source of his deposit, it will create tax chaos. In fact, it will accelerate TAX TERRORISM wherein common man will keep getting notices for the deposits made above Rs. 5,000. What this provision brings into effect is shifting the burden of innocence on depositor as against the tax official. Importantly, once a tax payer is in scrutiny, generally, his Refunds are held back until the closure of the assessment. This will create unnecessary burden and litigations for the income tax payers. Generally, it would be great if things were all online and Income Tax was extremely efficient, however, one cannot deny corruption in Income Tax and instances of untoward harassment cannot be overlooked or assumed to not exist.  

This move would have been a welcome move if it was applicable from 30th Dec onwards, i.e., when the normal window to deposit would have ended; and to reduce pressure of conversion or exchange on RBI officials. However, suddenly changing stance a week before, bang at the end of initial deadline for allowing people to deposit until 30th Dec, points to un-preparedness and extreme arbitrariness. In fact, where the Government has been unable to provide adequate currency in system and ATM lines are still piled up, this move comes as a more ONE SIDED MATCH from the Government.

Source:

https://rbi.org.in/Scripts/NotificationUser.aspx?Id=10784&Mode=0

http://cpwd.gov.in/WriteReadData/other_cir/24410.pdf

http://www.egazette.nic.in/WriteReadData/2016/173147.pdf

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