The deadline to convert and deposit demonetized currency has elapsed. If the deposited amount is below ₹2.5 lakh, then you do not have to worry about paying tax on it. However, the Income Tax Department may send you a notice if your deposited amount exceeds ₹2.5 lakh.
Who all are likely to get a notice from the Income Tax Department?
Banks have been directed by the government to furnish the following details:
Upon these details being sent to the IT department, necessary notices may be sent to individuals. You may also get a notice if you have purchased high-value items during this period such as a car or gold.
This is because the IT department has asked all car dealers and jewellers to provide their business transactions to the department if there has been a spike in their sales after the announcement of demonetization.
What you need to do under such circumstances
Do not panic if you receive a notice from the IT department. As these are trying times for the country, anyone who has deposits over ₹2.5 lakh in their accounts may get a notice. This does not mean that an investigation will be launched against you to implicate you in any manner. Additionally, the IT department may only send such notices to those individuals whose deposit amounts do not match their income as per their assessments.
Those who have relevant or necessary documents to explain their deposit amounts do not need to worry in any way. Furthermore, if you have done nothing illegal in obtaining the money that was deposited, you do not have to worry irrespective of your deposit amount or income. You will be investigated only if you do not provide a satisfactory answer to explain the source of the money.
After the announcement of demonetization, the government has also made it compulsory for you to furnish your PAN card number in case your deposit amounts exceed ₹50,000. Therefore, if you have not filed IT returns for a while and your deposit amount has exceeded ₹2.5 lakh, the IT department may send you a notice asking you to explain the source of the income and request you to file your taxes. An investigation will also be launched in such cases.
What will happen if you do not respond to the notice sent by the Income Tax Department?
You must always respond to any notices the IT department issues to you. However, for whatever reason, if you have not responded to the notice, the department will send you a follow-up notice. Furthermore, the department will use your deposit data and other details available on you to assess your income and tax liability, upon which you will be asked to pay the difference if any.
However, note that if you abstain from responding to the IT department notice, they may assume that you cannot explain the source of your income and hence, you did not respond to the notice. If you are unsure on how to proceed or respond to the notice, you always have the option of consulting with a tax consultant or any practicing CA for the right course of action.
It will always be beneficial if you keep a record of all your finances through relevant documents. You can furnish these documents if you ever receive a notice from the IT department and resolve the issue quickly. It is not a good practice to keep such issues pending. In case, you are served with a notice, always cooperate with the authorities instead of resisting responses or providing misleading information. Always pay your dues to stay under the radar.