Today the United Opposition is observing ‘Jan Akrosh Diwas’ — to protest  against  the torture common man has gone through, post the demonetisation move of the Government.

So far, the call for a 12-hour strike has received a lukewarm response. But the long queues outside banks and ATMs tell you more than what your naked eyes can perceive

Ordinary people who don’t ‘hoard’ black money, use plastic or digital money in a limited way are suffering. Cash dependent businesses are struggling, daily wage earners, agricultural labourers, and even small and medium enterprises have hit a rough patch. These are the evident side-effects of demonetisation or maybe the effects of bad planning, one could call.

Nevertheless, the positive is the ‘black money’ crackdown has been a body blow for some big hoarders And that’s probably why ‘Jan Akrosh Diwas’ may end without any significant participation from the common man.

A fact remains that many black money hoarders have smartly turned their cash to gold, while others have deployed it to pay ‘token money’ to purchase real estate. Some holding heaps of cash have deposited huge sums in another’s bank account hoping to evade the scrutiny of taxmen. Besides, you may have even seen and read about people burning old Rs 500 and Rs 1,000 bank notes.

Nevertheless, the Government is planning to take steps to shut down tax evaders and cash hoarders. As per media reports, the Government would amend income tax laws to be able to impose heavy penalties in case of income mismatches. 

What is the the Government planning?

Earlier Mr Hasmukh Adhia, Revenue Secretary, briefed media on the subject saying, “We would be getting reports of all cash deposited during the period of November 10 to December 30 above a threshold of 2.5 lakh in every account.” He had further added, “This would be treated as... tax evasion and the tax amount plus a penalty of 200% of the tax payable would be levied as per the section 270(A) of the Income-tax Act.”
 

What does Section 270A(1) of the Income-tax Act say? A sum equal to 50% of the amount of tax payable on under-reported income is levied as penalty. However, if under-reported income is in consequence to any misreporting by any citizen, the penalty shall be equal to 200% of the amount of tax payable on under-reported income.

However, many tax experts have opined that the exchange of scrapped notes can’t automatically make a case of misreporting of income. The said section was introduced in the Budget 2016-17 (applicable to the current assessment year i.e. 2017-18) to penalise tax defaults by way of misreporting and under-reporting of income.

So, technically, if a person declares unaccounted cash deposits as earned income for FY 2016-17 and pays tax at applicable rates, that can no longer be taxed u/s 270A(1). The penalties u/s 270A(1) come into play only when there is a difference between self-declared income and income as assessed by the tax department. Providing inaccurate details or concealing the source of income per say don’t attract any penalty.

Under this scenario, there may arise a situation where a black-money holder would deposit the money in accounts declaring it as his income for FY 2015-16, and pay just 30% tax at the max -- getting away with his sins. Further, as a part of the assessment a catchphrase is also true that “all cash is not black money and all black money is not cash”. This would not only make the demonetisation programme ineffective but would also scar the success of Income Declaration Scheme (IDS) which imposed 45% penalty on income declared.

The Government appears to have acknowledged the point many experts have been making since the revenue secretary briefed media about the Government’s intent. While nobody knows what the amendments would be and how they will plug the loopholes.

Going by the developments and media reports, it would be prudent to expect that the Government may slam 60% penalty on the unaccounted cash deposits made post-demonetisation.

Recently addressing the nation through a radio programme ‘Maan Ki Baat’, the Prime Minister Mr Narendra Modi raised concerns about growing malpractices. He said, “Even now, some people think they can bring their black money, the money earned through corruption or the one which is unaccounted for, back into the system through illegal means." He further added, "Unfortunately, they are misusing the poor for this purpose by misleading, luring or tempting them by putting money into their accounts.”

In an address which turned out to be no less than a warning statement for those wrestling to protect their black money, he didn’t forget to mention that, “A very stringent law to deal with 'benami' (illegal) transactions is being implemented, that will make such things (transactions) very difficult. Government does not want the people to face such difficulties." 

So far, India’s black money is faceless and maybe fearless too. The common man hopes that soon the faces hiding behind curtains will be exposed and appropriate repercussions will be imposed on tax dodgers and those with huge unaccounted cash.

Just in:

At the time of writing this piece, the Finance Minister tabled a Bill in Lok Sabha to amend the Income Tax Act. In another development he also proposed a new scheme called. “Taxation and Investment Regime for 'Pradhan Mantri Garib Kalyan Yojana, 2016' (PMGKY)'; to counter the black-money driven economy. Under which the aggregate tax inclusive of base rate, penalty and surcharge is proposed at 50%. Further, the declarant will have to deposit 25% of his/her disclosed income in a scheme which would be notified by the Government. The deposits received through this scheme will be utilised for infrastructure development. No interest will be paid on such deposits.

Although there is no official statement on it as yet, the Government has certainly taken a step closer to plugging the loopholes available to tax evaders.

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ozoneHut@rediffmail.com Dec 03, 2016 Does this mean that if tax and penalty are paid then there would be no questions asked about the income source? That would mean all corruption money can be converted. Is this good?

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