MUMBAI: As India struggles with demonetization, individuals and businesses are using old currency notes to settle debts while income tax officials are at a loss how to go about imposing 200% penalty — as announced by a senior finance ministry official — on such funds flowing into banks.
Firms are clearing dues to suppliers, depositing cash in bank accounts to repay old loans, and buying memberships of clubs, SPAs and gyms; in all these cases their books would show that cash changed hands before Tuesday evening when demonetization of 500 and 1000 rupee bills was announced. On the other hand, taxmen in several cities have told their superiors that there is no provision in the law to automatically slap penalty on such cash being deposited in banks, according to I-T officials, tax practitioners and bankers ET spoke to.
“There can be penalty on escaped income. But what do you do if someone deposits a crore with bank, pays 33% tax, and discloses the amount as income in his tax return filed for the assessment year ’17-18? Even if it’s driven by demonetization, this is technically voluntary declaration and shown as `income from other source’. This has been discussed in our meetings over the past few days… To impose penalty on this money, there has to be retrospective amendment of the income tax law,” said a senior tax official.
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