CA Umesh Sharma

Arjuna (Fictional Character): Krishna, central government is taking various initiatives to reduce transactions in cash thereby increasing transactions through banks. So in F.Y. 2016-17 what will be the effect of all this and on income tax provisions?

Krishna (Fictional Character): Arjuna, to reduce cash transactions and to assure reduction in unaccounted income and tax evasion, government is levying obstacles on transactions in cash and providing various benefits on transactions through bank. It is providing various facilities and concessions if payment is done using online or digital mode, mobile, ATM, debit card, credit card, etc. Due to this, there will be a decrease in cash transactions and bank transactions will increase.

Arjuna: Krishna, due to demonetization, businessman are in stress of what will be the effect on taxation as earlier transactions were in cash and now through bank?

Krishna: Arjuna, in business, there is an increase and decrease in sale and purchase depending upon the period, i.e. whether there is boom or recession in the market and upon various situations. For e.g. if turnover of a businessman in the F.Y. 2015-16 is Rs.1 Crore and in current F.Y. it is Rs.60 lakhs from 1st April 2016 to 8th November 2016, and after 9th November 2016, the transactions in cash may reduce and they may increase through banks. Assuming that in F.Y.2016-17 the turnover amounts to Rs.1.2 Crore, then whether the increase of Rs.20 Lakhs is due to demonetization? Every businessman is required to check this.

Arjuna: Krishna, whether income tax department will send notice if there is an increase or decrease in turnover or income?

Krishna: Arjuna, there is always fear among business class of the income tax department. Income tax department is carrying out survey, raid or search after demonetization. If, in this time, anyone tries to manipulate his accounts to adjust his unaccounted income, then he may have to suffer.

Arjuna: Krishna, income tax department has released a circular on 9th December 2016 on increase in turnover. What is mentioned in it?

Krishna: Arjuna, income tax department has directed its officials to not to reopen income tax return of previous year on a reason of mere increase in turnover in F.Y.2016-17. The example for this is same as mentioned in above example of increase in turnover by Rs.20 Lakhs. As this has occurred due to demonetization, income tax officer should not consider increased turnover as a basis for reopening the income tax return of previous year. This would help a businessman to get a sigh of relief.

Arjuna: Krishna, what precautions should businessman take?

Krishna: Arjuna, businessman will be required to divide his cash book and books of accounts in 3 parts as per time period; a) 1st April to 8th November 2016, b) 9th November to 30th December 2016 and c) 31st December to 31st March 2016. The cash in hand of a businessman at the end of each day can be ascertained on the basis of books of accounts maintained by him. That is why, he can deposit an amount of cash equivalent to the amount appearing in his books of accounts as on 8th November 2016 as his cash in hand. If cash is deposited more than such amount, then he may have to suffer. Because of this, he may have to pay tax and penalty on such amount. Businessman should calculate cash as on 8th November on the basis of gross profit, net profit, ratio, etc. and should take decision on the basis of books.

Arjuna: Krishna, what should people learn from this?

Krishna: Arjuna, after demonetization, one should take decisions for F.Y.2016-17 after verifying details about sales and purchase in cash, expenditure, loans accepted and loans given etc. Income tax department is taking care so that the people who keep their books in proper manner and who pay tax do not get harmed. This gets clear from the circular released by them. Also, the person evading tax will not be forgiven.

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