Today, citizens having black money are a worried lot. They are calling up tax consultants and chartered accountants, to find out how they can declare the cash they hold, without having to pay taxes + penalty. Any cash deposit significantly above INR 2.5 Lakhs, will be matched with the income tax returns (ITR), you have filed. In case there is a mismatch and you fail to explain the source of income, you have to pay tax and a penalty of up to 200%, on the amount you have deposited.
After the Prime Minister has scrapped 500 and 1000 rupee notes, to curb black money in the economy, citizens having black money, are finding it very difficult to hide unaccounted cash. However, honest tax payers have nothing to worry. They enjoy a good night’s sleep, while the rich hunt around for sleeping pills. If you have earned your money the honest way, you can easily deposit it with the bank.
The cash you deposit in the bank, must match the income you have declared, while filing income tax returns (ITR). You just have to explain the source of cash (how you got the money). Want to learn more on tax planning? Just leave a missed call on IndianMoney.com financial education helpline 02261816111 or just post a request on IndianMoney.com website. IndianMoney.com offers Free, Unbiased and on-call financial advice on Insurance, Mutual Funds, Real Estate, Loans, Bank Accounts and capital markets.
If you are married and your wife is a homemaker, cash can be shown as money, saved out of the monthly household budget. A homemaker can also show a reasonable amount of money, as personal pocket money. The tax laws do not say, how much money can be saved in this way. However, the amount needs to be reasonable. It should match with the total household income and monthly expenses.
Let’s say you earn INR 1,00,000 a month. The household expenses are INR 50,000. Your homemaker spouse, should be able to pass off about INR 10,000 to INR 12,500 a month, as savings + personal pocket money. This is about 10% to 12% of the income you earn.
Remember: The tax department would be suspicious if the amount saved in this manner, exceeds 20% - 25% of the household budget.
After the Government scrapped 500 and 1000 rupee notes, there has been a rise in the number of citizens, (especially true for homemakers and college students), reporting income earned from home tuitions and cookery classes. This is a trick used to pass, unaccounted money, as income of a homemaker. While in some cases, homemakers actually earn income, many of them do not and income shown from tuition/cookery classes as homemaker’s income, is just a trick to hoodwink the tax department.
Remember: If the income you report is too high, the tax department will thoroughly check the income tax returns filed. You will have to give the names of the students attending tuition classes and the tax department will also investigate the daily tuition routine.
SEE ALSO: Documents Required For Home Loans
Another common trick you can use, is to show cash as gifts received from certain relatives. If you are an adult, the gifts you get from spouse, siblings, brother-in-law/sister-in-law and your/spouse lineal ascendants and descendants and certain other relatives, are not taxed. However the income you show as a gift, must be reasonable and should match the economic status of the household. A family with a monthly income of INR 70,000, can receive cash gifts of about INR 28,000 to 35,000 in a year.
Remember: If the cash you receive as a gift from certain specified relatives, exceeds a reasonable limit, the tax department will ask for the name of the giver and check his sources of income.
If you have been married this year, you’re in luck. You can show cash, as gifts received from relatives/non-relatives, on the occasion of marriage. The gifts you receive on your wedding, from both relatives/non-relatives, is tax free. However the cash amounts you show as a gift, must be reasonable and match with the economic status of your family/household.
Remember: If your wedding was very lavish and you have received a lot of cash in gifts, the tax department would want to know the source of money, spent on the wedding. The tax department would ask for the names of the givers and check their sources of income.
Yes…the Government makes rules and you look for loopholes to exploit. This game of cat and mouse goes on. You try to exploit loopholes in rules, to pass off unaccounted money….the government closes the gap, by framing new laws. However you need to be extremely smart or lucky to beat the system all the time. Why not earn money the honest way and pay income tax?
Be Wise, Get Rich.
This is to inform that Suvision Holdings Pvt Ltd ("IndianMoney.com") do not charge any fees/security deposit/advances towards outsourcing any of its activities. All stake holders are cautioned against any such fraud.