It is not uncommon to encounter reports regarding income tax officials conducting raids on individuals for possessing unauthorized cash and other valuables within their residences or workplaces. In certain instances, such cash and valuables are confiscated, and in others, the individuals involved face arrest. This raises an important question: Is possessing a significant amount of cash considered a crime in India? Additionally, what is the permissible limit of cash that one can retain at home?
Tax and legal experts clarify that the Income Tax Act does not specify any regulations regarding this matter. Individuals are permitted to keep any amount of cash at home, as long as it is derived from legitimate sources and duly reported in their Income Tax Returns (ITR) and accounting records.
Manmeet Kaur, Partner, Karanjawala & Co, says that there is no set legal restriction on the quantity of cash you can retain at home in India. But it’s crucial to make sure the money comes from a reliable source and is reported in your income tax returns (ITR) and, if necessary, your books of accounts.
“Sections 68 to 69B of the Income Tax Act contain provisions addressing unexplained income, which indicates that if you are unable to offer a convincing justification for the source of the funds, they may be subject to taxation as unexplained income,” Kaur says.
Amit Gupta, Partner at Saraf and Partners, also informs that the Income Tax Act is sub-silentio on the maximum quantum of cash holdings. However, cash holdings beyond reasonable limits would definitely invite legitimate suspicions on such cash holdings being unaccounted.
“In case of any investigation, the source for every last rupee of the cash holding would need to be proved to the tax department to be from legitimate sources duly disclosed and accounted for in the books of accounts and tax-filings made by the person. If there is any failure to furnish a satisfactory explanation about the nature and source of such funds, then the said unexplained money would also attract the penal consequences and higher tax outlay under the provisions of the Income Tax Act,” he adds.
It’s, therefore, a good idea to maintain track of where your money comes from and make sure all of your transactions are recorded and accounted for in order to prevent any problems with tax authorities. For example, if you operate a business, it is essential that your records align with the cash book you maintain. Additionally, individuals who are not engaged in business activities must also provide an explanation for the origin of any cash they possess.
A lack of a satisfactory explanation regarding the origin and nature of these funds may result in the classification of the money as taxable unexplained income. In such cases, this unexplained income could be subject to a tax rate of 78%, in addition to a penalty.