RBI OBSERVATION ON HIGH CASH WITH PUBLICI
The decline in the bank deposit and higher cash with the public can also be attributed to the increased surveillance by the Income Tax Department under the NDA Government resulting in unaccounted money being withdrawn from the Banking System.
The banks were earlier deducting tax at source from the interest income earned (in excess of INR 10000/- in a year) from fixed deposit by consolidating the deposits held in one branch of the bank. However, the practice was changed and the interest earned on all fixed deposits held under a Single PAN no in a single bank was consolidated and tax was deducted at source.
Some individuals in higher tax bracket (20% or 30%) were neither declaring their interest income from FDs in their returns not claiming the credit of 10% tax deducted at source and thereby getting away by paying only 10% income tax on such income.
The tax deduction at source created an audit trail and the interest paid to an individual was reflected in the AS 26 Statement. Further, computerization of the income tax returns and development of software to match the interest income declared in the return with the interest income appearing in AS 26 lead to electronic analysis of the IT returns. Similarly, where the person with interest income above INR 10000 a year has not filed any return were also identified through such analysis.
The income tax Department during the last three months have issued notice to the entities where there a mismatch between the AS 26 statement and the income returned or returned not filed. The income tax Department has sought the reason for discrepancy or for not filing the returns and have asked the entities to either file their returns or revise their returns. Where income tax return has not been filed the Department has also asked the individuals to declare the source of their income. Such notices have been issued for the FY 2013-14 and 2014-15 and individuals have been directed to file their returns or revised returns before 31/03/2016.
This automation coupled with increased surveillance by the income tax department has made it difficult to park unaccounted money in Bank FDs or escape tax on the interest income earned from bank fixed deposits. This could also be one reason for flight of the unaccounted money from the banking system. more