The RBI data indicates a decline in the total value of Rs 2000 notes in circulation, amounting to 10.8 percent of the total as of March 31, 2023, which is approximately Rs 3.62 lakh crore, it is likely that this amount will be deposited in banks by September 30, 2023.
The withdrawal of Rs 2,000 notes has caused confusion among public regarding its implications. To comply with the directive from the Reserve Bank of India (RBI), individuals are required to deposit their Rs 2,000 banknotes into their bank accounts or exchange them for notes of other denominations at any bank branch before September 30, 2023. While there is no limit on cash deposits in bank accounts, tax experts emphasize the importance of being aware of reporting requirements and the potential scrutiny from the income tax department. Individuals who possess a significant amount of cash at home and choose to deposit it in a bank account should maintain accurate records and documentation to substantiate the source of the funds. This proactive approach can help address any concerns or inquiries that may arise during the reconciliation process.
“Cash deposits in bank accounts are subject to reporting requirements. High-value cash deposits are reported by the bank in the Statement of Financial Transactions (SFT) to the income tax department. This is also reflected in the depositor’s 26AS and AIS (Annual Information Statement),” said Neeraj Agarwala, Partner, Nangia Andersen India.
The limit for reporting in the Statement of Financial Transactions (SFT) is a) If Rs 10,00,000 or more is deposited in a savings account during the year. b) If Rs 50,00,000 or more is deposited in a current account during the year. “The income tax department utilizes the SFT statement to reconcile with the income of the individual declared in the income tax return. In cases where discrepancies are found, the tax department may issue a notice to the depositor for further information or clarification,” adds Agarwala.
When significant cash deposits are made, there is a possibility of drawing the attention of tax authorities. If the amount of these deposits does not align with the reported income in your Income Tax Return, it could result in a notice from the income tax department. “This notice would seek clarification regarding the source of these cash deposits. Therefore, if you are depositing substantial amounts of cash into your bank accounts, it is crucial to maintain a record of the source of this cash. Failure to do so may leave you unable to provide satisfactory answers to potential notices from tax authorities seeking clarification on these deposits,” says Tarun Kumar Madaan – Tax Head at Coherent Advisors.
Madaan explains, if any amount is discovered credited in the books of accounts maintained by the taxpayer for a particular financial year, and the taxpayer fails to explain the nature and source of that amount, or if the explanation offered is deemed unsatisfactory, the said amount may be treated as unexplained income for that previous year. Consequently, this unexplained income will be subject to taxation and applicable interest and penalties. Hence, by keeping a comprehensive record of the origin of the funds, you can effectively address any inquiries or concerns the tax authorities raise.
In the previous instance of demonetisation in 2016, some individuals discovered demonetised currency after the deadline to deposit it in the bank had passed. Consequently, there is concern among the public this time as well. Madaan says, “While the RBI has emphasised that the Rs 2000 note remains a legal tender, enabling its use for transactions in daily life, the latest circular does not specify the consequences of not exchanging or depositing the note by the September 30 deadline. As a result, individuals are exercising caution and diligently verifying whether they still possess any Rs 2000 currency notes, aiming to exchange them before the stipulated deadline.”
Some individuals mistakenly believed that Rs 2,000 notes would no longer be considered legal tender. However, it is important to clarify that Rs 2,000 notes will continue to be accepted and can be used for transactions as usual. The withdrawal does not render them obsolete,” says Agarwala.
On May 20, the State Bank of India (SBI) issued a press release stating that no form or identity proof would be necessary for exchanging Rs 2,000 currency notes. According to the announcement, members of the public can exchange Rs 2,000 notes up to a limit of Rs 20,000 at a time without the need for a requisition slip. Additionally, individuals are not required to submit any identity proof during the exchange process, as stated by the country’s largest lender.
The RBI data indicates a decline in the total value of Rs 2000 notes in circulation, amounting to 10.8 percent of the total as of March 31, 2023, which is approximately Rs 3.62 lakh crore, it is likely that this amount will be deposited in banks by September 30, 2023. Going by this data there are around 180 crore notes in circulation of Rs 2,000.
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