With deposits in banks growing by Rs 6 lakh crore after the government’s decision to cancel the legal tender status of Rs 500 and Rs 1,000 notes, a portion of which is presumed to be without matching income with the depositors, the Cabinet on Thursday discussed legal options of hefty imposts on such under-reported wealth beyond a specified threshold. While the government did not come out with any official statement in this regard to keep the propriety of informing Parliament first as it is in session, sources said that amendments to the Income Tax Act to enable taxing such wealth at a rate much higher than the 45% levied under the recent Income Disclosure Scheme (IDS) was likely. Sources said the Cabinet, chaired by Prime Minister Narendra Modi, also discussed tax incentives to promote cashless transactions.
The I-T Act amendments need Parliament’s approval.
An alternative discussed earlier was that if more than Rs 10 lakh is deposited in an account between November 10 and December 30 without matching income declared, tax plus penalty of 200% of the tax could be levied. But tax experts had subsequently pointed out that this required changes in Section 270 (A) of the I-T Act and some doubted the legal tenability of the move.
When reports poured in of black money holders misusing others’ accounts, including Jan Dhan accounts, to sidestep the taxman, the government last week warned that such attempts would attract “income tax and penalty” while persons who allow his or her accounts to be misused would be prosecuted for abetment. After the “demonetisation” decision, a whopping Rs 24,000 crore was deposited in Jan Dhan accounts, while these previously held just Rs 45,637 crore, accumulated over two years and a month.
The currency taken out of the system via the scrapping of Rs 500 and Rs 1,000 notes was worth over Rs 14 lakh crore, or 11% of GDP. While the government is expecting some Rs 10 lakh crore to return to the banking system by December 30, any deposit above Rs 2.5 lakh could come under scrutiny, if the income sources are not revealed to the satisfaction of the taxman. The IDS saw disclosures to the tune of Rs 67,000 crore.
Meanwhile, the government is taking steps to accelerate the shift from cash to online and card-based transactions. In a video conference with chiefs of public sector and private banks on Friday, finance minister Arun Jaitley asked them to focus on alternative banking channels such as NEFT, mobile wallets, prepaid cards, QR codes, payroll cards, debit and credit cards and Unified Payments Interface, among others. India’s cash to GDP ratio is around 12% compared with global average of 4%. The Indian Banks’ Association will launch advertising campaign including demonstration videos on how to use cards and other modes for cashless transactions, sources said.
– No OTC exchange of Rs 500 & Rs 1,000 notes any more, given a “declining trend” in such exchanges
– Highway toll exemption extended till midnight December 2-3, despite daily loss of Rs 75 crore; pay via old Rs 500 notes too till Dec 15
Scrapped Rs 500 notes—but not Rs 1,000 notes—can also be used for payment of the following till December 15:
– For all specified transactions exempted earlier (like govt hospitals, pharmacies, retail fuel outlets)
– Fees up to Rs 2,000/student in govt/local-body schools; fees in govt colleges
– Prepaid mobile top-up up to Rs 500 a time
– Purchases — up to a new cap of Rs 5,000 at a time —from consumer cooperative stores
– Current bills and arrears to water and electricity utilities only by individuals & households
I do not disagree with (the) objectives.. (but it is) a monumental management failure… A case of organised loot and legalised plunder… GDP can decline by about 2 percentage points (and) this is an underestimate.”
– Manmohan Singh, former prime minister
Those who did not consider the generation of so much black money and scams during their regime as blunder are now finding the crusade against black money as blunder.”
– Arun Jaitley, finance minister