Is Cash Deposit up to 2.50 Lacs tax free?

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Introduction

• Deposits up to Rs. 2,50,000 have not been given
  any blanket tax-free status. Only such deposits
  will not be reported to the Income-tax Department
  by banks/post offices.
• The Law At Present
•  The regular threshold exemption limit for
  individuals (other than resident senior citizens
  and super-senior citizens) is Rs. 2,50,000. 
•  If the individual is a resident and senior
  citizen (aged 60 or more but less than 80), then
  it is Rs. 3,00,000.
•  If the individual is a resident and super-senior
  citizen (aged 80 years or more), it is Rs.
  5,00,000.
•  If total income for any year exceeds this limit,
  it will be taxed as per applicable slabs.

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• If individual is found to be the owner of any
  money, bullion, jewellery or other valuable
  article and same is not recorded in any books of
  account of the individual and the source of
  acquisition is not satisfactorily explained,
  amount will be charged at flat 30 without regard
  to above threshold exemption limit.
•  If any individual deposits cash exceeding Rs.
  50,000, on any one day, in account in bank or
  post office, PAN is required. This requirement of
  PAN for cash deposit also applies if aggregate
  deposits in bank account from 09-11-2016 to
  30-12-2016 exceeds Rs. 2,50,000 in the aggregate.
•  Bank and Post office will have to report on or
  before 31-01-2017 cash deposits during the period
  09th November, 2016 to 30th December, 2016
  aggregating to
• Rs. 12,50,000 or more in one or more current
  account of a person or
• Rs. 2,50,000 or more in one or more accounts
  (other than a current account of a person)

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The following clarifications in government Press
Release dated 10-11-2016 may be noted Q.1 A lot
of small businessmen, housewives, artisans,
workers may have some cash lying as their savings
at home, will the Income-tax Department ask
questions if the same is deposited in
banks? A.1 Such group of people as mentioned in
the question need not worry about such small
amount of deposits up to Rs.1.5 or 2 lacs, since
it would be below the taxable income. There will
be no harassment by Income Tax Department for
such small deposits made. Q.2 Will the
Income-tax Department be getting reports of cash
deposits made during this period? If so, will the
current threshold of reporting requirement of
reporting cash deposits of more than Rs. 10 lacs
will only continue? A.2 We would be getting
reports of all cash deposited during the period
of 10th November to 30th December, 2016 above a
threshold of Rs. 2.5 lacs in every account. The
department would do matching of this with income
returns filed by the depositors. And suitable
action may follow.
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1. Tax-free status is for those whose total
income does not exceed threshold limit of Rs.
2,50,000/Rs. 3,00,000/Rs. 5,00,000. One can
imagine that savings of people with meagre income
are not likely to exceed this amount. If they can
prove they saved higher amount because they live
in joint family and other family members have
more income, then even higher cash deposits will
not be taxed. 2. Housewives can even get
exemption for higher cash deposits if it is
savings out of pin money given to them by
husbands for their expenses. Only that it will
have to be established that husband is regular
ITR-filer and has disclosed sufficient incomes
and made sufficient cash withdrawals or transfers
through banking channels to wife
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3. Those whose cash deposits during the period
09-11-2016 to 30-12-2016 do not exceed Rs.
2,50,000 will not be picked up for scrutiny
automatically as no reporting of the same is done
by banks/post offices. But if their returns are
picked up for scrutiny on random basis, this
deposit can be examined and taxed at 30 if not
satisfactorily explained. There is as yet no
instruction from department to income tax
officers to ignore demonetized notes deposited in
bank account up to Rs. 2,50,000 during scrutiny
assessment. 4. Again it is not as if you have
Rs. 10 lakhs in old notes and you have four bank
accounts and you deposit Rs. 2.5 lakhs in each of
the 4 accounts, your Rs. 10 lakhs has become
tax-free. Your accounts may not be reported by
bank/post office to Income tax department. Also,
remember all the four accounts are under your PAN
number. But if your return is picked up in
scrutiny at random, all four bank accounts will
be called for and checked and if you fail to
explain source of the amounts satisfactorily,
then you will be taxed flat 30 on Rs. 10,00,000
without allowing for any regular threshold
exemption limit as above.
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