- Date : 22/06/2023
- Read: 3 mins
Rs 2000 notes phased out by RBI. Read on to learn about the SFT rules to steer clear of tax troubles.
- RBI withdraws Rs 2000 notes from circulation
- Compliance with SFT rules is essential
- Prepare accurate documentation and validate income sources
The Reserve Bank of India (RBI), on May 19, 2023, announced to withdraw the Rs 2000 denomination banknotes from circulation. The daily exchange limit is set at a maximum of ten Rs 2000 notes, amounting to a total of Rs 20,000. While no maximum overall limit has been specified, being aware of the Statement of Financial Transaction (SFT) rules has become necessary to ensure compliance.
According to the SFT Rules, banks and the Post Master General are obligated to inform the income tax department about significant cash deposits. These include cash deposits exceeding Rs 10 lakh in accounts other than the current account and Rs 50 lakh in one or more current accounts within a financial year. They are also reflected in the depositor's 26AS and Annual Information Statement.
Additionally, banks are obligated to report suspicious account activities, including sudden significant increases in cash deposits. This reporting requirement applies to the exchange of bulk Rs 2,000 notes as well.
Considerations with respect to SFT Rules?
To ensure a smooth deposit process, you should fill out a cash deposit slip with accurate bank details, including the account number and name. These slips are typically available at bank counters or through online banking portals.
Source of income documentation
Some banks may request information about the source of income on the deposit slip. So, prepare this information in advance. If someone is depositing cash on your behalf, they must carry identification proof. If your PAN card is not linked with your Aadhaar card, bring your Aadhaar card.
Possibility of income tax notice and penalties
The likelihood of receiving an income tax notice depends on various factors. Large sums of money, including Rs 2,000 notes, can be deposited as long as the source of income can be corroborated. Hence, depositing such sums directly into the bank account is advisable instead of exchanging them.
Similarly, the income tax department cross-references the deposit data with the information available in its records, such as income tax returns. If the deposit aligns with the existing details, the individual is less likely to receive an income tax notice.
In the event of receiving a notice, it becomes the taxpayer's responsibility to establish the source of income and provide supporting documentary evidence. Therefore, maintain proper documentation and evidence to validate the source of income and deposited funds.
Failure to explain or disclose income sources may result in an income tax notice, tax penalties, and consequences under the Prevention of Money Laundering Act, 2002.
To ensure compliance with the RBI's withdrawal of Rs 2000 notes, you should be mindful of the Statement of Financial Transaction (SFT) rules. Remember to prepare accurate documentation and validate the source of income to avoid income tax notices and penalties.