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Banks to flag big ₹2,000 deposits to I-T department

2000 note deposit in bank

Banks will be required to notify the income tax department about large cash deposits of ₹2,000 currency notes above a threshold as part of the statement of financial transactions (SFT) they are mandated to submit to the tax authority annually.

However, the exact currency denomination of the deposits does not need to be specified.

This would bring large cash deposits made during the ongoing phasing out of ₹2,000 notes under the radar of tax officials, who routinely comb through the data to detect tax evasion, two people informed about the development said on the condition of anonymity. The reporting thresholds stand at ₹10 lakh for term and savings deposits and ₹50 lakh for current account deposits.

To be sure, this reporting system has been in existence for a long time and is not a new provision in the wake of RBI’s decision to recall ₹ ₹2,000 notes, said a third person, who also spoke on condition of anonymity.

“Everyone may keep some funds in cash for a rainy day. But, can there be a genuine reason for anyone to maintain large piles of cash, especially high-denomination notes, instead of trying to earn interest? That behaviour should merit an explanation, especially if the deposit is disproportionate to the income reported in the tax return. So, that question will be asked," one of the two people cited above said on the condition of anonymity. The third person, who is knowledgeable about the working of the tax department, said it might be premature to speculate whether large cash deposits in the wake of the withdrawal of ₹2,000 notes reported by banks will attract scrutiny. “Let people exercise their right to deposit or exchange the cash. It is not the right thing to spook the public," the person said.

An email sent to the spokespeople for finance ministry and the Central Board of Direct Taxes (CBDT) on Wednesday seeking comments for the story remained unanswered.

The tax department has been emphasizing voluntary tax compliance, encouraging taxpayers to disclose any transaction that may not have been reported by updating their tax returns. The e-verification scheme launched in 2021 and the scheme to update tax returns introduced in 2022 enable assessees to update their returns for previous years and add back any erroneously omitted income or to come clean on under-reporting of earnings.

Sudhir Kapadia, partner, tax and regulatory services at EY said that those who have legitimate funds in cash need not worry about depositing to banks. "As per existing rules, unusually high cash deposits get reported to the department irrespective of the currency denomination. Nothing in the RBI's announcement of withdrawal of ₹2000 note changes that position."

As a measure of caution, some banks are insisting that people who make repeated attempts to exchange ₹2,000 notes at the counter furnish their IDs, bankers said. Reserve Bank of India governor Shatikanta Das is expected to meet senior officials of private sector banks next week on governance issues where the progress of ₹2,000 note exchanges and deposits would also be discussed, and problems faced in the process would be addressed, a banker said on the condition of anonymity.


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