Depositing Someone Else's Money In Your Bank Account? Beware Of New Law

This warning comes in the wake of reports that some people are "renting" someone else's bank accounts to deposit their banned notes for dodging tax authorities.

Are you depositing someone else's money in your bank account? Benami (proxy) transactions unaccounted transaction shall be punished with rigorous imprisonment from 1 year to 7 years and shall be liable to fine." This is the warning the Income Tax Department has come out with in newspaper advertisements to make the public aware of the consequences of making illegal deposits.
This warning comes in the wake of reports that some people are "renting" someone else's bank accounts to deposit their banned notes for dodging tax authorities.
The Reserve Bank of India has also warned people of "strict punitive action" for exchanging or dealing in specified bank notes in an unauthorised manner.
 

"It is reported that certain gullible persons are exchanging these notes on behalf of others; some are even helping them by depositing the hoarded cash into their own bank accounts," the RBI said in a statement. 

The Income Tax Department has asked banks to report all cash deposits exceeding Rs 2.5 lakh during the 50-day window provided to tender the now-defunct Rs 500 and Rs 1,000 notes. Previously, banks were required to report to the I-T department only when cash deposits in an account exceeded Rs 10 lakh in one full year.

The government has also clarified that deposits of banned notes will not enjoy immunity from tax and the law will apply on source of such money.

"The tax department can question cash deposits and depositors may have to explain and justify that cash deposits that have been made from disclosed income to avoid penal consequences," said Preeti Khurana, chief editor of ClearTax.com

The tax department has said that under the Benami Act, any person who deposits someone else's unaccounted money into their own bank account shall be treated as 'Benamidar'. The Prohibition of Benami Property Transactions Act, 1988 (the Benami Act) came into effect from November 1

The 'Benamidar', beneficial owner and any other person who abets or induces the Benami transaction, shall be punished with rigorous imprisonment from 1 year to 7 years and shall be liable to fine, the tax department said, warning that deposit in the bank account shall be liable for confiscation.

"It is noteworthy that under this law property means any property whether movable or immovable, or tangible or intangible. Hence it would cover cash as well within its ambit. Therefore, if any person deposits any cash on behalf any other person in his own account, such a transaction would be considered as a Benami transaction," said Sandeep Sehgal, director tax at Ashok Maheshwary & Associates LLP.

"The application of this Act could be a game changer in penalizing the people laundering money for other as the act is more stringent than the Income-tax Act, 1961," he added.