Arun Jaitley does well to warn would-be launderers that the money is black till it isn’t white

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Updated: December 08, 2016 8:15 PM

Thanks to unscrupulous bank managers and businessmen/traders who lent them their books to launder money, tax-evaders appear to have got another lease of life.

Tax returns of businesses will be examined by sophisticated computer systems, perhaps with new algorithms, to see if suspicious sums of money got deposited by businesses in the routine course. (PTI)Tax returns of businesses will be examined by sophisticated computer systems, perhaps with new algorithms, to see if suspicious sums of money got deposited by businesses in the routine course. (PTI)

Thanks to unscrupulous bank managers and businessmen/traders who lent them their books to launder money, tax-evaders appear to have got another lease of life. Indeed, enterprising CAs have, for instance, advised clients to simply deposit black money in banks this year, and pay the normal tax rate on this instead of the 45% payable under Income Disclosure Scheme-1 (IDS) – if the taxman contests this, the advise goes, we’ll litigate and block the case for decades. Such large-scale laundry operations mean two things – one, there could be very little black money which will be extinguished due to demonetization and, two, there will be few takers for IDS-2 which has an effective tax rate of around 56%.

This is where revenue secretary Hasmukh Adhia’s statement and the finance minister’s reiteration of it become important – both have said that mere depositing of demonetized currency in a bank account does not make it white. In other words, all bank deposits will be scrutinized and matched against existing tax-returns – any unusual spurt in incomes will likely be considered to be black money. Tax returns of businesses will be examined by sophisticated computer systems, perhaps with new algorithms, to see if suspicious sums of money got deposited by businesses in the routine course. Even bank transactions are to be examined by computers to determine irregular transactions by unscrupulous bank managers, some of whom have been arrested or transferred out of their existing posts.

It is not clear what level of success will be achieved, but for those who laundered money at a 15-20% cost, there is the possibility of getting caught and, apart from paying a large penalty, even landing up in jail. In the case of those who used the JanDhan route, similarly, there is a likelihood of a serious investigation tripping them up and/or the money getting confiscated. For all these worthies, then, IDS-2 offers the best hope. Ditto for the government which needs to show that, after all the country’s suffering, a reasonably large sum of black money got trapped.

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