As we all aware Rs. 500 and Rs. 1000 notes which were currently under circulation till 8th Nov 2016 shall no more be considered as valid legal tender w.e.f. midnight of 8th Nov 2016 itself.

Steps like Foreign Asset Disclosure Scheme, JanDhanYojana, Income Disclosure Scheme and now this ban on the notes means that the ruling government is clearly keen to brush out the black money from the system. This may also help in correcting the corruption, terrorism and fake notes from the system as per PM Modi.

There are various ways in which the genuine money in hands of the common man can be encashed or exchanged.

It is worth reading this out if you have this question.
This announcement has created a lot of panic and confusion in the business community at large. There are companies running Toll booths, departmental stores, cash and carry businesses, apparel stores, Restaurants selling food and beverages, Movie Theatres, Radio Cab Companies,jewelry stores, stores selling white goods Air conditioners, Refrigerators, Television Sets, Mobile Phone,etc. There is a labor intensive companies like construction companies, textile mills, infrastructure projects wherein cash wages are distributed to the workers daily may tend to have withdrawn cash for such payments. The Petrol Pumps, Hospitals and Medical Stores even though are allowed to collect the cash would require to be cautioned. Thegenuine businesses are tensed as to what will happen to the cash lying in their hands? Whether they shall get the value of money lying in their hands in form of cancelled tenders.

Please note that any deposit of Rs. 500 and Rs. 1000 in the bank should be accounted for before 8th Nov 2016. Another thing which is worth noting is that banks shall require valid PAN of the depositor for accepting the cash deposit above Rs. 50,000 at a go.

Following are the research points from Income Tax Act 1956 and Rules there on worth noting if you have Rs. 500 and Rs. 1000 rupee notes and want to know the way out for the same.

If you have a genuine income generated or cash withdrawals, you may very well deposit the same in the current accounts or for that matter savings account as well. While looking at the relevant rules 114E wherein the banks and other financial institutions are required to do the disclosure to the Income Tax Department, following are the points worth noting:

More than Rs. 50 Lacs of deposit for a financial year in the Current Account. Please note that the rule says that the amount of deposit is in “one or more bank accounts”. This means Rs. 50 Lac is an overall limit qua PAN for deposit in any bank account linked to the PAN.
More than Rs. 10 Lacs of deposit for a financial year in the savings bank account. It is advisable not to deposits in a single day in a single bank account above Rs. 2 Lacs. The above point of overall limit applies to the savings bank account as well.
Having said that, the above disclosure via AIR doesn’t stop you from depositing the cash generated from the business. At the most one will require to handle the query from the Income Tax department for the same. There is no limit to the cash deposit in the bank account as such. One just needs to look at few further points below before concluding the deposit in the bank.

If it is proved that the cash deposit is not genuine which means the books of account and the supporting documents do not back up the same, it can create a problem. Section 68 of the Income Tax Act is covering the unexplained cash credit. Such cash credit will be taxed at the maximum marginal rate i.e., 30% u/s. 115BBE without benefit any deduction or income slabs available in the Income Tax Act 1956.
It is worth noting that there is a penalty under Sec 271 (1)(c) ranging from 100% to 300% on such unexplained cash credit.
Another important sleection which is noteworthy is TCS on accepting cash on sale Bullion and Jewellery. Further any purchase of any commodities & even services wef 1st June 2016 shall attract 1% tax in form of TCS. This means if anyone wants to deposit cash for any sale on or before 8th of Nov, will be required to look at the TCS provisions as well.
That apart, please be sure that the transactions which are sought to be generating the cash which is proposed to be deposited, are shown in the turnover in the Excise, Sales Tax, Service Tax, etc. We mean to say that cash sales if any needs to be tallying with the overall sales disclosed in the returns filed for the sales tax, excise and service tax. This makes an additional evidence in case one faces scrutiny from the Income Tax Department.
Further, it is worth connecting with the CFO, Auditors, Tax Consultants who are aware of the business models, tax complications and other related issue, with the facts and figure before depositing the cash in the bank.

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