Government has planned to introduce amendments in the Income Tax Act to nab those who are depositing their undeclared income into bank accounts post 8 November. Government has used several tactics so far to flush out black money from the system but every time black money hoarders attempt to find a way to save their illegal money. Post demonetisation, we saw a surge in deposits in Pradhan Mantri Jan Dhan Yojna accounts. So far Rs. 21,000 crores have been deposited in the PMJDY accounts, majority of which was deposited post demonetisation. This lead the government to stop over-the-counter exchange of old currency notes from Thursday midnight last week.
Now government has come up with a plan to tax and penalize those depositing unaccounted cash into bank accounts. Although Income Declaration Scheme’s window to declare undisclosed income is closed now, government has plans to propose changes in the Income Tax Act to give another chance to tax evaders to declare their wealth and avoid prosecution. According to the proposal, if a person declares his unaccounted income while depositing it to the bank account then he will be asked to pay approximately 50% tax on that income. However, those who are caught with undisclosed wealth by the I-T department, may have to pay approximately 85% tax which effectively leaves them with nothing. Those who declare and deposit their income will have forget 25% of such income for 4 years as government is contemplating issuing a bond in which the money would be parked and used for rural infrastructure development. No interest will be paid on the ‘lock in’ money.
One time compliance window closed on 30 September this year saw Rs. 75,000 crores converted from black money to white. However, despite warning of strict action against tax evaders by the government, only 65,000 citizens brought their unaccounted wealth into light. Demonetisation has made it tough for people to hide their black money as unaccounted money kept in cash has become redundant due to old Rs. 500 and Rs. 1,000 notes being declared invalid tender.
Demonetisation has not only affected black money hoarders but honest taxpayers as well. Country is feeling the brunt of cash crisis which is affecting the day-to-day life of citizens. To give some relief to people, government had permitted them to use old Rs. 500 notes till 15 December in public utilities and services like mobile recharge. However, government again revised the date and as per the latest notification on this matter, old Rs. 500 notes will be valid only till 2 December.
Students are allowed to pay fees up to Rs. 2,000 in schools and colleges run by state governments, municipalities and local bodies. Payment towards pre-paid mobile top-up to a limit of Rs. 500 per recharge has also been allowed while purchase from consumer cooperative stores will be limited to Rs. 5,000 at a time. Current and arrears dues payments will be limited to only water and electricity, a facility that will continue to be available only for individuals and households. However, the release said payments for the transactions under all the exempted categories will now be accepted only through old Rs. 500 notes. December 2, 2016 is the last date for using old Rs. 500 notes. On one hand, government is taking additional steps to support demonetisation’s main goal (flush out black money) while on the other hand it is taking suggestions from people and taking actions to give relief to honest taxpayers.