Demonetisation Scheme

The simplified takeaways from the above said demonetization scheme is given below.

      1.       Exchange of old notes for new notes

      2.       Deposit of old notes

      3.       Withdrawal of Cash from Bank

4.    Other online banking transactions

      5.       Tax Impact

The above points have been formulated as a flowchart which is given below.

 

4.       Other Online Banking Transactions

All other banking transactions i.e. credit card payments, debit card payments, online shopping and internet banking can be done at any day at any time for any value without any restrictions.

In short, the conditions existed before this scheme shall continue to hold good in respect of these financial transactions.

5.       Tax Impact

Ø  Cash deposits made during this period i.e. from November 10^th to December 31^st 2016 in all the bank accounts above threshold limit of Rs.2,50,000 will be generated by every banks and the reports will be sent to the Income Tax Department.

Ø  The Income Tax Department will be matching those deposits with the income tax returns filed by all the individuals.

Ø  Any mismatch in income will be considered as a tax evasion.

Ø  And hence as per the provisions of section 270A of IT Act, the consequential impact will be the appropriate tax amount payable for such under-reported income along with a penalty of 200% of such tax payable.

Analysis of Section 270A of IT Act:

This section 270A was newly introduced in the Finance Bill,2016 in order to rationalize the penalty proceedings which will coming into effect from A.Y.2017-18 and the existing provisions of Section 271(1)(c) shall be applicable only for the Assessment Years upto A.Y.2016-17.

According to the provisions of this section, penalty shall be levied on the under reported income in addition to the tax and interest payable, if any, on the under reported income.

Under this section, penalty has categorized into two parts.

i. Under Reporting of income – 50% of tax payable

ii. Misreporting of income – 200% of tax payable

What is under reporting of income :

According to this section, a person is said to have under reported his income if,

(a) the income assessed is greater than the income determined in the return processed under clause(a) of sub-section (1) of Section 143;

(b) the income assessed is greater than the maximum amount not chargeable to tax, where no return of income has been furnished

(c) the income reassessed is greater than the income assessed or reassessed immediately before such reassessment;

(d) the amount of deemed total income assessed or reassessed as per the provisions of section 115JB or section 115JC as the case may be is greater than the deemed total income determined in the return processed under clause (a) of sub-section (1) of section 143;

(e) the amount of deemed total income assessed as per the provisions of section 115JB or section 115JC is greater than the maximum amount not chargeable to tax, where no return of income has been filed;

(f) the amount of deemed total income reassessed as per the provisions section 115JB or section 115JC is greater than the deemed total income assessed or reassessed immediately before such reassessment 

(g) the income assessed or reassessed has the effect of reducing the loss or converting such loss into income.

Quantum of under reported income :

          

I.            Where income has been assessed for the first time,

a.       If return has been furnished,Difference between the income assessed u/s 143(3) or 147 and the income determined u/s 143(1)(a).

b.      If no return has not been furnished,Total assessed income, in the case of a company, firm or local authority difference between the income assessed and maximum amount not chargeable to tax, in the case of individuals

II.          In any other case difference between the amount of income reassessed or recomputed and the amount of income assessed, reassessed or recomputed in a preceding order.

                      Under reported income – shall not include:

a.       Any addition or disallowance is made by the A.O. but the assessee has offered an explanation which is bona fide to the satisfaction of tax authority AND has disclosed all the material facts to substantiate the explanation.                              

b.      Any addition made on an estimated basis, if the accounts of the assessee are correct and complete as per the accounting system but the method employed is such that income cannot properly be deduced there from.

c.       Any addition or disallowance made on an estimated basis, if the assessee has, on his own, estimated a lower amount of addition or disallowance on the same issue, has included such amount in the computation of his income and has disclosed all the facts material to the addition or disallowance;

d.      Any addition made in conformity with the arm’s length price as determined by the TPO, if the assessee had maintained information and documents prescribed under section 92D, disclosed the international transactions and also disclosed all material facts relating to such transactions.

e.      Any addition made in the case of a person in whose case search is initiated u/s 132 since the penalty in such case shall be leviable only u/s 271AAB.

                                   What constitutes misreporting of income?

             The under reported income shall be in consequence of misreporting of income in the following circumstances.

a.       Misrepresentation and suppression of facts.

b.      Failure to record investments in the books of accounts

c.       Claim of expenditure not substantiated by any evidence

d.      Recording of any false entry in the books of accounts

e.      Failure to record any receipt in books of accounts having a bearing on total income

f.        Failure to report any international transactions or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply.

                               

                                Quantum of Penalty Leviable:

a.       50% of tax payable on under-reported income

b.      Where the under reported income is in consequence of any misreporting , then the penalty shall be equal to 200% of tax payable on under – reported income.

                                  

                                   Onus on the A.O.

             A combined reading of misreporting and under reporting of income shows that it is the under-reported income which is to be treated as misreporting of income if such under-reported income is in consequence of items specified above.

 So, firstly, under-reported income is to be computed and then A.O has to give a finding that such under-reported income is in consequence of the items specified above. So, if any addition or disallowance does not fall within the scope of “under-reported income” then question of treating the same as misreporting of income does not arise.

Thus, the onus is on the revenue to prove that under reported income is in consequence of the circumstances mentioned above so as to prove that it is misreporting of income.

                                                 

Exchange of OHD Notes by NRIs:

For Non Resident Indians(NRI) who have cash on hand, four options are available for them to get it exchanged with the new notes issued by the RBI.

1.       Carry the cash to India

2.       Use of Money Exchange Centres

3.       Deposit into NRO Account

4.       Authorize person in India

1.       Carry the cash to India:

             The Non Resident Indians, if travelling to India, then they can carry the OHD notes on hand and they can deposit those money into their bank accounts or Post Office Accounts till December 30,2016.

             If not exchanged before December 30,2016 still they have the option to deposit cash upto March 31,2017 by furnishing valid id proof, PAN and declaration form at RBI specified offices.

2.       Use of Money Exchange Centres:

                NRIs can exchange their OHD notes at certified money exchange in their city (even commercial private money exchange outlets) and change their money into dollars,pounds or other local currency and then later they can change it back to INR when they visit to India.

                This option can be exercised in case NRIs are not travelling to India before 31^st March,2016

3.       Deposit into NRO Account:

                As per RBI guidelines, in case NRI are having NRO account, then they can deposit their OHD notes into their NRO account.

4.        Authorize person in India:

                According to RBI guidelines, NRIs may authorize in writing enabling another person in India to deposit their OHD notes into their bank account in India. The person so authorized has to go to the bank branch with the OHD banknotes, the authority letter given by NRI and a valid identity proof.

(Valid Identity proof is any of the following: Aadhaar Card, Driving License, Voter ID Card, Pass Port, NREGA Card, PAN Card, Identity Card Issued by Government Department, Public Sector Unit to its Staff)

                                                                                                                                                                       

FAQs on Demonetisation of High End Denomination Notes(500 and 1000  notes) 

1. Why is this scheme introduced?

The incidence of fake Indian currency notes in higher denomination has increased. For ordinary persons, the fake notes look similar to genuine notes, even though no security feature has been copied. The fake notes are used for antinational and illegal activities. High denomination notes have been misused by terrorists and for hoarding black money. India remains a cash based economy hence the circulation of Fake Indian Currency Notes continues to be a menace. In order to contain the rising incidence of fake notes and black money, the scheme to withdraw has been introduced.

2. What is this scheme?

The legal tender character of the existing bank notes in denominations of ₹500 and ₹1000 issued by the Reserve bank of India till November 8, 2016 (hereinafter referred to as Specified Bank Notes) stands withdrawn. In consequence thereof these Bank Notes cannot be used for transacting business and/or store of value for future usage. The Specified Bank Notes can be exchanged for value at any of the 19 offices of the Reserve Bank of India or at any of the bank branches of commercial banks/ Regional Rural Banks/ Co-operative banks or at any Head Post Office or Sub-Post Office.

3. Does the scheme apply to pre 2005 banknotes of ₹500 and ₹1000?

Yes the specified banknotes include pre 2005 banknotes in the denominations of ₹500 and ₹1000.

4. How much value will I get?

You will get value for the entire volume of notes tendered at the bank branches / RBI offices.

5. Can I get all in cash?

No. You will get upto ₹4000 per person in cash exchange irrespective of the size of tender and anything over and above that will be receivable by way of credit to bank account.

6. Why I cannot get the entire amount in cash when I have surrendered everything in cash?

The Scheme does not provide for it, given its objectives.

7. ₹4000 cash is insufficient for my need. What to do?

You can use balances in bank accounts to pay for other requirements by cheque or through electronic means of payments such as Internet banking, mobile wallets, IMPS, credit/debit cards etc.

8. What if I don’t have any bank account?

You can always open a bank account by approaching a bank branch with necessary documents required for fulfilling the KYC requirements.

9. What if, if I have only JDY account?

A JDY account holder can avail the exchange facility subject to the caps and other laid down limits in accord with norms and procedures.

10. Where can I go to exchange the notes?

The exchange facility is available at all Issue Offices of RBI and branches of commercial banks/RRBS/ Co-operative banks or at any Head Post Office or Sub-Post Office.

11. Need I go to my bank branch only?

For exchange upto 4000 in cash you may go to any bank branch with valid identity proof.
For exchange over 4000, which will be accorded through credit to Bank account only, you may go to the branch where you have an account or to any other branch of the same bank.
In case you want to go to a branch of any other bank where you are not maintaining an account, you will have to furnish valid identity proof and bank account details required for electronic fund transfer to your account.

12. Can I go to any branch of my bank?

Yes you can go to any branch of your bank.

13. Can I go to any branch of any other bank?

Yes, you can go to any branch of any other bank. In that case you have to furnish valid identity proof for exchange in cash; both valid identity proof and bank account details will be required for electronic fund transfer in case the amount to be exchanged exceeds ₹4000.

14. I have no account but my relative / friend has an account, can I get my notes exchanged into that account?

Yes, you can do that if the account holder relative/friend etc. gives you permission in writing. While exchanging, you should provide to the bank, evidence of permission given by the account holder and your valid identity proof.

15. Should I go to bank personally or can I send the notes through my representative?

Personal visit to the branch is preferable. In case it is not possible for you to visit the branch you may send your representative with an express mandate i.e. a written authorisation. The representative should produce authority letter and his / her valid identity proof while tendering the notes.

16. Can I withdraw from ATM?

It may take a while for the banks to recalibrate their ATMs. Once the ATMs are functional, you can withdraw from ATMs upto a maximum of ₹2,000/- per card per day upto 18th November, 2016. The limit will be raised to ₹4000/- per day per card from 19th November 2016 onwards.

17. Does the limit of ₹ 10,000 withdrawal apply to withdrawals from bank account of one bank from another bank?

These limits are not applicable to cash withdrawal from a bank account by one bank from another bank, Post Office, Money changers operating at International airports and operators of White Label ATMs. The branches maintaining Currency Chests have been advised to accommodate the requests from other branches in their vicinity – linked or otherwise – for supply of cash.

18. Can I withdraw cash against cheque?

Yes, you can withdraw cash against withdrawal slip or cheque subject to ceiling of ₹10,000/- in a day within an overall limit of ₹20,000/- in a week (including withdrawals from ATMs) upto 24th November 2016, after which these limits shall be reviewed.

19. Can I deposit Specified Bank Notes through ATMs, Cash Deposit Machine or cash Recycler?

Yes, Specified Bank Notes can be deposited in Cash Deposits machines / Cash Recyclers.

20. Can I make use of electronic (NEFT/RTGS /IMPS/ Internet Banking / Mobile banking etc.) mode?

You can use NEFT/RTGS/IMPS/Internet Banking/Mobile Banking or any other electronic/ non-cash mode of payment.

21. How much time do I have to exchange the notes?

The scheme closes on 30th December 2016. The Specified banknotes can be exchanged at branches of commercial banks, Regional Rural Banks, Urban Cooperative banks, State Cooperative Banks and RBI till 30th December 2016.

For those who are unable to exchange their Specified Bank Notes on or before December 30, 2016, an opportunity will be given to them to do so at specified offices of the RBI, along with necessary documentation as may be specified by the Reserve Bank of India.

22. I am right now not in India, what should I do?

If you have Specified banknotes in India, you may authorise in writing enabling another person in India to deposit the notes into your bank account. The person so authorised has to come to the bank branch with the Specified banknotes, the authority letter given by you and a valid identity proof (Valid Identity proof is any of the following: Aadhaar Card, Driving License, Voter ID Card, Pass Port, NREGA Card, PAN Card, Identity Card Issued by Government Department, Public Sector Unit to its Staff)

23. I am an NRI and hold NRO account, can the exchange value be deposited in my account?

Yes, you can deposit the Specified banknotes to your NRO account.

24. I am a foreign tourist, I have these notes. What should I do?

You can purchase foreign exchange equivalent to ₹5000 using these Specified Bank Notes at airport exchange counters till November 14, 2016 provided you present proof of purchasing the Specified Bank Notes.

25. I have emergency needs of cash (hospitalisation, travel, life saving medicines) then what I should do?

Till the 14th November 2016, specified banknotes can be used as under:—
(a) for making payments in Government hospitals for medical treatment and pharmacies in Government hospitals for buying medicines with doctor's prescription;
(b) at railway ticketing counters, ticket counters of Government or Public Sector Undertakings buses and airline ticketing counters at airports for purchase of tickets;
(c) for purchases at consumer cooperative stores operated under authorisation of Central or State Governments and the customers shall provide their identity proof;
(d) for purchase at milk booths operating under authorisation of the Central or State Governments;
(e) for purchase of petrol, diesel and gas at the stations operating under the authorisation of Public Sector Oil Marketing Companies;
(f) for payments at crematoria and burial grounds;
(g) at international airports, for arriving and departing passengers, who possess specified bank notes, the value of which does not exceed five thousand rupees to exchange them for notes having legal tender character;
(h) for foreign tourists to exchange foreign currency or specified bank notes, the value of which does not exceed five thousand rupees to exchange them for notes having legal tender character.
(i) for making payments in all pharmacies on production of doctor’s prescription and proof of identity;
(j) for payments on purchases LPG gas cylinders;
(k) for making payments to catering services on board, during travel by rail;
(l) for making payments for purchasing tickets for travel by suburban and metro rail services;
(m) for making payments for purchase of entry tickets for any monument maintained by the Archaeological Survey of India.
(n) for making payments towards any fees, charges, taxes or penalties, payable to the Central or State Governments including Municipal and local bodies;
(o) for making payments towards utility charges including water and electricity -which shall be restricted to individuals or households for payment of only arrears or current charges and no advance payments shall be allowed

26. Can I use the Specified banknotes to settle outstanding in my loan account?

Deposits of Specified bank Notes into all types of deposit/loan accounts is allowed subject to CTR/STR reporting.

27. What is proof of identity?

Valid Identity proof is any of the following: Aadhaar Card, Driving License, Voter ID Card, Pass Port, NREGA Card, PAN Card, Identity Card Issued by Government Department, Public Sector Unit to its Staff.

28. Where can I get more information on this scheme?

Further information is available on our website (www.rbi.org.in) and the website of the Government of India (www.finmin.nic.in)

29. If I have a problem, whom should I approach?

You may approach the control room of RBI by email or on Telephone Nos 022 22602201/022 22602944