Feb 2023

Cash deposit and non filling of ITR

"Cash deposit in bank account is a common practice, but it can have certain consequences as per the Income Tax Act of India. The act states that any deposit of cash over Rs 10 Lakh in a financial year will be subjected to scrutiny and may result in taxation of the amount.

The image attached below is a notice issued to XYZ seeking an explanation for not filing the tax return and also seeking details of cash deposit transaction.

The consequences of depositing a large amount of cash in the bank account are as follows:

Taxation: If the source of the cash deposited is not declared or justified, the tax authorities may consider it as an undisclosed income and tax it accordingly.

Penalty: If the cash deposit is found to be in violation of the Income Tax Act, a penalty of 200% of the tax payable may be imposed on the depositor.

Notice from the Income Tax Department: The department may issue a notice to the depositor, seeking clarification on the source of the cash deposit. If the explanation provided is not satisfactory, the tax authorities may initiate a tax assessment.

TDS Deduction: The bank may also deduct TDS (Tax Deducted at Source) from the deposit amount if it exceeds the prescribed limit. The depositor may then have to file a return of income to claim a refund of the TDS deducted.

Investigation: In case of any suspicious activity, the tax authorities may initiate an investigation and raid the premises of the depositor.

It is important to note that the above consequences apply only in cases where the source of the cash deposit is not declared or justified. In case the cash deposit is a legitimate source of income, there is no need to worry about any of the above consequences.

In conclusion, depositing a large amount of cash in the bank account can have significant consequences as per the Income Tax Act. It is advisable to declare the source of the deposit and provide a justification to avoid any tax implications."

CA Tomy Veerath & CA Alex V John

"Disclaimer: The information provided on this blog is for educational purposes only and is not intended as professional advice. We cannot be held responsible for any consequences that may arise from implementing the information without proper consultation. It is important to seek professional advice tailored to your specific circumstances before making any decisions or taking any action based on the content of this blog."