Black money hoarders will not get any respite as a minimum of 50 per cent tax may be levied on unexplained bank deposits made using the scrapped Rs 500 and Rs 1,000 notes up to December 30, along with a four-year lock-in period for half of the remaining amount as per the amendment to the Income Tax Act approved by the Cabinet. The Government is mulling a speedy amendment for approval during the ongoing Winter Session of Parliament.
However, a higher tax and penalty could be levied if assessees do not declare the unaccounted cash voluntarily. Top sources in the Government said, “In case such deposits are not declared and are detected by tax authorities, a total of 90 per cent tax and penalty would be charged.”
After the Government’s demonetisation move, it had given a 50-day period beginning from November 10 for either depositing the scrapped notes or exchanging them for new currency. While the exchange, which was limited to a maximum of Rs 2,000 per person, has been withdrawn, all old notes without any ceiling can be deposited in bank accounts.
As per the Government data available on Friday, this move had led to a surge in bank deposits, particularly in zero-balance Jan Dhan accounts that swelled by Rs 64,252.15, with Uttar Pradesh leading the chart with Rs 10,670.62 crore deposits followed by West Bengal and Rajasthan, while it was Rs 21,000 crore in just two days before, raising suspicions that these accounts may have been used to launder black money.
While the tax authorities had talked of levying a peak rate of tax and 200 per cent penalty on top of it for any unexplained deposit above Rs 2.5 lakh during the November 9 to December 30 period, it was felt that such a move may not have legal backing. “To plug those loopholes, the Cabinet is believed to have on Thursday approved amending the Income Tax Act by adding a clause in one of the sections to provide for the tax on an unexplained income during the window,” sources said.
Sources added that demonetisation was a big step to uproot black money and corruption but the very purpose would have been defeated if the ill-gotten wealth had made its way into the system through benami deposits. And taxing them was a way to punish dishonest people.
The tax rate however cannot be the same as charged from honest taxpayers. It also could not be 45 per cent tax and penalty charged on hereto undisclosed wealth brought to books using a one-time compliance window under the Income Disclosure Scheme (IDS) that ended on September 30. “Since the black money holder did not utilise the Government’s offer to declare his ill-gotten wealth, he should pay a higher rate of tax now and curbs placed on use of that money,” sources added.
The 60 per cent tax and penalty had been charged on disclosure of foreign black money last year. Sources said the Government is keen to root out benami deposits, particularly in Jan Dhan accounts.
The Government, they further said, is also contemplating coming out with a bond in which the 25 per cent lock-in money would be parked and can be withdrawn after four years by the depositor. Out of the additional taxes on unexplained and undisclosed deposits, the Government will create a fund to build rural infrastructure.
Amid reports of high tax penalty terrifying people from putting their cash savings in the formal banking system, on Thursday night the Government took a call by summoning a Cabinet meeting at a very short notice. “The Government wants all of the Rs500 and Rs1,000 notes to be deposited and not burnt or destroyed for the fear of penal action,” the sources said.