After we sent out the first appeal to all of you on 10th November, we have received encouraging feedback from many of you. We are happy that there is a large section of our profession that is thinking in the right direction and is supportive of the government’s action in its fight against black money. We shall continue to lend our support to the demonetisation of the currency notes by spreading awareness of the issues surrounding it and also by making appeals to our members and to the general public.
In this direction, we are happy to share an article written by a member of the Taxation Committee – CA Jhankhana Thakkar.
We hope you find it interesting and useful.
If any of you would like to contribute articles on this topic, please feel free to write to us on firstname.lastname@example.org
Chairman, Taxation Committee
Economic consequences of the steps leading to a “Clean India”
By CA Jhankhana Thakkar
Confucius had said “A journey of a thousand miles starts with a single step.”
When Hon’ble Prime Minister Narendra Modi stormed into power in 2014 by winning the Lok Sabha election with a massive mandate, he delivered a strong message:
“We are not here for any positions but for a responsibility”
As the days went by, from bureaucrats to MPs, everyone has started falling in line. Be it strengthening foreign policy or launching welfare schemes for low-income group, Team Modi has been working hard to fulfil people’s expectations.
The Hon’ble Prime Minister Narendra Modi announced on 8th November 2016 about the demonetization of Rs. 500 and Rs. 1000 notes with effect from the midnight of the same day, making these notes invalid. He also laid down a detailed step-down program. This program would stop all usage of existing Rs. 500 and Rs. 1000 notes. Citizens will have until 30th December 2016 to exchange the notes for lower tender with a valid ID at any bank or post office and until 31st March 2017 to exchange them at designated RBI offices by filling a declaration form.
Apart from combating black money, an indicated purpose is also to invalidate fake currency (used to finance terrorism) and curb corruption. A new redesigned series of Rs. 500 banknotes, in addition to a new denomination Rs. 2000 banknote are now in circulation.
With this move, black money owners are left with only two options:
- Route the cash through banks declaring it to be their income or
- Destroy the hidden notes
A report by Washington-based think-tank Global Financial Integrity estimated that India lost $344 billion in illicit fund outflows between 2002 and 2011. PM Narendra Modi also said militants operating against India were using fake notes of Rs 500, worth about $7.50 at current exchange rates. “Terrorism is a frightening thing … But have you ever thought about how these terrorists get their money? Enemies from across the border have run their operations using fake currency notes. This has been going on for years,” Modi said.
The above step has created excitement in almost everyone’s heart which would, in turn, help to achieve the vision of India moving into the category of developed countries.
This is the biggest and the boldest step by the Government for containing black money. It is like a surgical strike on black money as said by the respected Revenue Secretary Dr. Hasmukh Adhia, Ministry of Finance, Government of India on Twitter.
According to Dr. Hasmukh Adhia the following action needs to be taken swiftly:
1. Action to be taken against those jewellers who fail to take PAN numbers from buyers to ensure this requirement is not compromised
2. A person buying jewellery has to give his PAN number. Instructions are being issued to field authorities to verify this with all jewellers
3. If cash amount of above Rs. 10 lac is deposited in a bank account, not matching with declared income, same will be treated as tax evasion and in such a case, tax amount plus a penalty of 200% of the tax payable would be levied as per Section 270(A) of the income tax Act
4. Income Tax department would do matching of this with income returns filled by the depositors and suitable action may follow.
5. The income-tax department would be getting reports of all cash deposited during 10th November to 30th December 2016 above threshold of Rs. 2.5 lac in each account.
6. Since farmers' genuine income is not taxable, the farmers should not worry at all in depositing the old currency notes in their account.
7. However the farmer's income should not be disproportionately high compared to yield expected from the land owned by him.
Further, the following issues have been answered by the Revenue Secretary Dr. Hasmukh Adhia on 10th November 2016
1. A lot of small businessmen, housewives, artisans, workers may have some cash lying as their savings at home, will the income tax department ask questions if the same is deposited in banks?
A: Such group of people as mentioned in the question need not worry about such small amount of deposits up to Rs. 1.5 or 2 lacs, since it would be below the taxable income. There will be no harassment by the Income Tax Department for such small deposits made.
2. Will the Income Tax department be getting reports of cash deposits made during this period? If so, will the current threshold of reporting requirement of cash deposits of more than Rs. 10 lakh will only continue?
A. We will be getting reports of all cash deposited during the period of 10th November to 30th December 2016, above a threshold of Rs. 2.5 lacs in every account. The department would do matching of this with the income returns filled by the depositors. And suitable action may follow.
3. Suppose the department finds that huge amount of cash above Rs. 10 lacs is deposited in a bank account, which is not matching with the income declared, what would be the tax and penalty to be paid on the same?
A. This would be treated as the case of 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.
4. It is believed that a lot of people are buying jewellery now. How does the department plan to tackle this?
A. The person who buys Jewelry has to give his PAN number. We are issuing instructions to the field authorities to check with all the jewellers to ensure that this requirement is not compromised. Action will be taken against those jewellers who fail to take PAN numbers from such buyers. When the cash deposits of the jewellers would be scrutinized against the sales made, whether they have taken the PAN number of the buyer or not will also be checked.
The various views expressed by the authorities on social and other media have, in turn, given rise to more questions in the minds of the common man.
1. How will the jewellery markets be affected?
The jewellery industry has welcomed the government’s decision to ban old notes, saying gold demand will rise as people will have more faith in the precious metal than the currency notes.
Considering that India is the world’s largest gold consumer and imports a sizeable chunk of its total annual consumption which could be ranging from 900-1000 tonnes, any cleansing of the system that also cleans up this sector would ultimately be beneficial for economic development.
2. What would be the impact on Real Estate sector?
One of the sectors that will be most affected by the demonetisation will be the Real Estate sector where huge amounts of unaccounted money is invested.
It appears that the unorganised real estate sector will be adversely affected by this.
As rightly said by Getamber Anand, president - CREDAI National, only the fly-by-night players in the sector will be affected. “The organised part of the RE industry has always been compliant and it is only the unorganised fly-by-night players who will face the brunt.”
3. Cashless economy
With the new limits on initial ATM withdrawals from bank accounts limited to Rs. 2500 a day and Rs. 24,000 a week, it will drive people towards card / electronic payments across the country (in simple words digital transactions will slowly replace the cash transactions in daily activities).
With this move of demonetisation, there will be increase in use of plastic money and also digital wallets which could help to reduce the transaction costs which generate revenue income for the banking sectors in the form of nominal fees.
4. Tax havens and foreign accounts still untapped
The big chunk of the black money which will be left relatively untouched by the demonetisation will be the money that is lying out of India in the form of foreign currency, gold, which are secreted away in tax havens. The scheme is not affecting the huge volumes of black money parked in offshore accounts, gold, and property, etc. How the government plans to nab these offenders is yet to be seen.
5. Monitoring black money
A number of steps have been taken post 8th November to curb mal practices which were being reported in the press. For example, certain measures have been initiated to prevent laundering of black money by the following methods:
- Temple donations
- Using poor people as money mules
This demonetisation ends the struggle of genuine people to fulfil their basic necessities and impact on the life of every Indian.
It will motivate people to stick to ethics and thereby bring in cleanliness in every sense to help the economy of the country.
Further, this demonetization step will significantly reduce evasion of taxes and hence in turn, it will improve GDP of the country.
Points to Ponder:
1. It would be highly imprudent for people to take decision in a hurry.
2. This is not the time to panic. There is still time until 30th December 2016, to exchange your notes and deposit your cash. In fact, even after December 30, 2016, these old notes can be exchanged from the RBI offices till 31st March 2017. The government will come up with further notifications and clarifications for easing problems. So, it would be advisable to wait for some time, say eight to 10 days before hurrying with the deposit and exchange.
3. The department will keep track of every individual, their PAN card detail, and tally it with tax filing done in past as well as for the current year. Hence, it would be advisable to maintain proper and genuine documents.
4. There are news reports that some people are accepting and depositing the cash balances of their friends and relatives blindly in their own account without proper documents. This is highly avoidable as it could lead the accommodating party towards a tax scrutiny. In any case, it is an anti-national act since it is directly in conflict with the government’s war on black money.
5. One must keep in mind the fact that the Income Tax department will be constantly on the lookout for transactions of cash exchanges beyond Rs 2.5 lakh or deposit in savings account beyond this limit. Hence, it would be advisable to keep a note of one’s existing account balance ceiling before depositing any cash into one’s account.
6. ATMs will not accept cash deposits. Hence, deposit the amounts in your respective bank branches.
As a citizen of the country and that too an educated and professionally qualified one, I fully support the government in this nation building exercise and extend my fullest support in making this initiative a resounding success. I appeal to fellow professionals to join this fight and to make our dreams come true so that the “Acche Din” truly will truly be experienced by all of us.
Last but not the least, as rightly said by M.J.McGuire
“The bread of Life is still better than Chicken Soup for the Soul.”