Amidst all the horde of demonetization speculations that are making rounds, a new disclosure scheme was being drawn up. This scheme is likely to introduce an amendment to the income tax law. This amendment is likely to be effected early next week. Under this scheme, people voluntarily depositing cash that can’t be accounted for in banks will face a tax of 50% and have a fourth of the total locked in a zero-interest instrument for four years.

 

 

Failing to declare unaccounted money under this scheme as well shall make a person liable to penalty and prosecution. Penalty maybe much as 30% tax plus a penalty of about 60% (a total levy of 90%). Besides, only 25% of the total amount disclosed will be available for immediate use. This move is supposed to ensure that the black money declared does not get circulated immediately in the market. These amendments have already been sent to the President for his assent.

As per reports, the demonetization announced on November 8 was a big step to put an end to black money and corruption but its purpose would have been defeated if ill-gotten wealth returned to the system through benami deposits. Further, the revenue raised from the process will be deployed in rural areas.

The rationale behind the increased tax rate as compared to the earlier disclosure scheme is punishing unscrupulous persons. Similar tax rates as that of honest citizens depositing the money or people availing the initial disclosure scheme would have defeated the purpose. Holders of black money who didn’t utilize IDS to declare it should face a higher tax rate and curbs on use of that money.

On the demonetization front, swaps at bank counters have been ended. The exemptions have been extended till December 15 but only for Rs 500 notes. The Rs 1,000 note can only be deposited into banks. Both notes can still be swapped at RBI offices. The government will amend the law, proving legislative backing for invalidation of the old currency. 

As per report, there has been a surge in bank deposits, particularly in zero-balance Jan Dhan accounts that swelled by over Rs 21,000 crore in just two weeks, raising the suspicion that these accounts were being used to launder black money. There were also reports that informal channels were being used to launder currency at a 30-35% discount.

This new scheme is another elixir for holders of black money to regularize such amounts and come under the legal umbrella. The associated 50% cost is nothing as compared to the 200% penalty and prosecution risk. It is also hoped that this time this new scheme will see a much better turnout than the previous one owing to the demonetization scare.

Source: Economic Times

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