Demonetisation blues? 6 ways to handle this situation

With this sudden huge announcement of currency ban, do you really need to press the panic button? Absolutely not, unless the cash lying with you is generated out of unlawful means and illegal transactions. If you have been a salaried person or a businessman paying taxes regularly then there is absolutely no need to worry about cash lying in your lockers, home or elsewhere, your money will be yours only. 

What should a common man do in this situation?

1. Know your Cash Position/Prepare Cash flow summary

Update your book of accounts immediately to know your cash position which means how much amount of cash balance out of your capital account has been generated. Though business person will understand this, a salaried person is hardly aware of this and mostly have never prepared their Balance sheet for that matter. Time has come to prepare your 'Cash Flow Statement' or 'Cash Summary' or 'Net Worth Statement' over the last few years.

Apart from using your past income tax returns data, you also need to look at your cash withdrawals from ATMs or your Bank account to arrive at the cash flow summary. This exercise will help you to justify the cash available to you because many honest taxpayers are worrying unnecessarily and are pressing the panic button. But as I had mentioned earlier, if you have genuine cash savings lying with you, then why worry? All you need to do is to create a supporting documentary evidence for record purpose which can be used as an evidence to justify your cash deposit; just in case you happen to get any notice or an enquiry from the tax department.

2. No need to worry about your Cash Deposit

There are various news making the round that you should not deposit more than Rs. 2.50 Lakh at a time or 10 lakh in a year (01/04/2016 to 31/03/2017) in your savings bank account as it may attract income tax notice and any unexplained or unmatched deposits of over above Rs 2.5 lakh during this 50-day window could attract income tax along with a 200% penalty in case of any income mismatch.

So yes, one who has black money lying with them has a reason to worry but why worry if you have genuine cash lying with you and the same had been declared in your tax returns as cash income and taxes have already been paid on the same and it perfectly matches your income tax returns? In this case, even higher amount of deposits will not be an issue except the fact that you may need to justify by submitting an evidence in the case of an enquiry, which may come at a later stage. So please, do not misunderstand this news. No, there will not be any penalty for genuine deposits which matches your returns, all you need to do is to create a summary as mentioned in the first point to work it as an evidence of your cash being genuine. Please refer my earlier columns on income tax notices and how to handle the same, but do not worry at all and just streamline your tax records right away, let people who have black money worry not you.

3. File your Tax Returns

You need to file your tax returns as soon as possible if the same are not filed for the last two financial years as beyond that you cannot file it (the older returns). As mentioned in the first point, your income tax return will be matched to see the cash you are depositing and in case you haven’t filed your tax returns, then chances of you getting a notice or an intimation is most likely. Be on the right side of the law and comply with taxation rules with immediate effect.

4. Using your account for others

Don’t use your account for depositing money for someone else, it will be extremely difficult to justify in the case of an enquiry, your simple act of support to someone will land you in a big trouble.

5. Wallets payments

Use e-wallets, net banking facilities, and debit & credit cards in case of any urgent transactions.

6. Don’t reshuffle your existing investments

Do not shuffle any of your legitimate investments to bank deposits. Let the mutual funds, equity and other financial instruments that you have invested in be stationery. Let the chaos pass.

A permanent measure is likely to cause a temporary pain but in the long run, its implications are expected to be only gain. Let us all welcome this move which is one of the historic events and has the potential to change our lives for better, let’s say no to corruption and help India grow.