CA Umesh Sharma

CA Umesh SharmaArjuna (Fictional Character): Krishna, presently everybody is discussing about the government’s decision of demonetization and its effect. The decision has made people confused as to whether their Rs.500 and Rs.1000 notes are an asset or liability. Lets enjoy discussion on this matter.

Krishna (Fictional Character): Arjuna, it’s a funny question that, Cash in Hand as on 8th Nov 2016 is an Assets or Liability? In certain cases it may be true also. In reality, there is a difference between some people’s cash in hand as per books and actual cash in hand (which includes unaccounted and black cash). If cash as per books is lesser than the actual cash in hand, then after 8th November the taxpayer will be able to deposit only the cash as per books in his bank account. The actual cash exceeding such amount has become his liability as he will not be able to deposit such amount in bank. For e.g. If a person has Rs.6 lakhs cash as per books as on 8th Nov 2016 but in real he has Rs.8 lakhs cash with him, then he will be able to deposit only Rs.6 lakhs in his bank account. And the balance Rs.2 lakhs will become his liability i.e not an assets and it’s a black money lying in his hand. Unlike above, if a person has cash in hand as per books more than what he has in actual or equal to actual cash, then such cash proves to be asset. For e.g. If a person has Rs.6 lakhs cash as per books and in reality he has only Rs.4 lakhs, then he can deposit upto Rs.6 lakhs in bank, but from where he will bring gap of 2 lakhs is an issue?. Thus many are in search of friends, relatives, etc to mitigate the Gap or adjust the Cash in Hand. Those who followed the tax law there cash in hand is assets and for other it’s a liability.

cash-in-hand-as-on-8th-november-an-asset-or-liability

Arjuna (Fictional Character): Krishna, what are the two types of black money?

Krishna (Fictional Character): Arjuna, the income on which tax is not paid constitutes black money. Such black money is divided into two; 1. Money earned by hard work but on which tax is not paid. People having such money are in stress.      2. Money earned out of corruption, terrorism, etc. Both these methods of earning money are wrong and after this demonetization decision of government they will land in trouble.

Arjuna (Fictional Character): Krishna, what a person depositing cash in bank is required to do as per notification released by income tax department?

Krishna (Fictional Character): Arjuna, income tax department has amended Rule 114B through notification released dated 15th November 2016 which is explained below:

According to rule 114B, quoting PAN no. is compulsory while entering into specified transactions. If cash deposited in bank or post account in a single day exceeding Rs. 50,000 or more  from 9th November to 30th December and the total cash deposited in bank or post account exceeds Rs. 250,000/-, then PAN number of the depositor is required to be quoted on deposit slip. For e.g. if a person deposits Rs.50,000/- six times in bank account totaling Rs.3 lakh from 9th November to 30th December, then he will have to quote his PAN number compulsorily. For depositing 49,000/- once and in total upto 30th Dec is not required to quote PAN. This includes all deposits from 9th Nov, i.e, of OLD and as well as of NEW notes, please take care of this.

Arjuna (Fictional Character): Krishna, what banks required to do as per the notification released by income tax department

Krishna (Fictional Character): Arjuna, as per Rule 114E of income tax act, each bank and post office will have to report the details of following transactions from 9th November to 30th December to income tax department:

  1. Cash deposited in current account exceeding Rs.12.5 lakhs.
  2. Cash deposited in other than current account i.e. Saving A/c, Loan, FD, RD, etc. exceeding Rs.2.5 lakhs.

For e.g. If a person deposits Rs.13 lakhs in current account either in installments or in single stroke, then bank will have to report it to the income tax department. Many businessmen are worried as, they carry on regular business after 9th Nov with New Notes and deposit it with Bank, and then also it will be counted in limit of 12.5 lakhs, as deposits of all OLD and NEW notes both will be considered for calculating the limit.

Arjuna (Fictional Character): Krishna, what is the limit of depositing cash in bank as per income tax act for a businessman and a person filing return?

Krishna (Fictional Character): Arjuna, such people 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 it will show negative cash balance in books which will be not accepted anywhere. Because of this, he may have to face tax and penalty on such amount. As per income tax act, if the amount deposited in savings account exceeds Rs.2.5 Lakh, then inquiry may be conducted. And if he is not able to prove the source of income, then he might have to pay 200% penalty. 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 (Fictional Character): Krishna, what should we learn from this?

Krishna (Fictional Character): Arjuna, many people do not have the habit of calculating cash in hand at the end of each day. Also there was no such rule in income tax act. But now onwards everyone will have to inculcate the habit of updating his books everyday and calculating cash as on that date. The proverb: “Once hurt, one is doubly cautious in future” is applicable in this case. Thus who follow tax laws and possession Cash in Hand as per Books of Accounts then Cash in Hand is Assets, for Non-taxpayers there Cash In Hand may turn out to be a Liability. Many say that to catch the Crocodile (Black Money holders) in a lake, fishes (Small taxpayers) are troubled. But now time has come, so that fishes needs to take care that no new crocodile are born or fishes gets converted into Crocodile in future. Crocodile will die or vanish in times to come based on his wrong deeds in life and also rules, tax laws of land are changing. Hence fishes should take of their good deeds in life.  In Hindi there is proverb “Jaise karni wasi bharni” is the truth of life, hence do good deeds and enjoy life.

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9 responses to “Cash in hand as on 8th November – An Asset or Liability?”

  1. kapil says:

    sir how many cash in hand held in books of account of individual person without any problem

  2. sachin jain says:

    sir i have 400000 cash in hand (both balance sheet personal and business ) as per my account till 8 nov, and i deposited 340000 , rs one time , rest 60000 thousand in form of small notes, than i have to pay penalty .

  3. Keshawrao Sonawane says:

    Sir, my father of 81 years old who is pension holder withdrawed the cash several times since one and half years every month and kept at home for their hospitality purpose. When the PM declared the demonetization, my father were having 5 lakhs in hand. Sir , my father has no PAN card, so the bank allowed only 49000/- cash deposition in a/c. Now how to deposite remaining amount in saving a/c.

  4. nihal kumar says:

    How can cash in hand be ascertained for small traders/businessman covered u/s 44AD or professionals us 44ADA for whom provisions of section 44AA regarding maintainance of books of account is not applicable.In the absence of account books how will their bona fide explanation be looked upon by the AO in the absence of documentary evidence

  5. Khemraj says:

    thanks a lot …very helpful Arjuna and Shri Krishna.

  6. AK Bhargava says:

    Interesting and informative too. Good job

  7. abhishek says:

    thanks to you ….very helpful

  8. suresh babu says:

    very interesting article.

  9. MUKESH KUAMR says:

    VERY POSITIVE AND COMPREHENSIVE EXPLANATION WITH EXAMPLE . THANKS

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