Demonetisation was intended to demolish the stockpile of black money in India. Between November 9, 2016 and December 30, 2016, the banking system received over 90% of demonetised currency.
After these estimates were made public, many concluded demonetisation was a failure. It was perceived earlier, the success of this drive would depend on the percentage of demonetised currency returned to the system, and that RBI's liability would lessen by the remainder value of currency with the public post-demonetisation. The Government was expected to make windfall gains on the account.
Those who determined demonetisation was a failure have based their case on the following:
- 90% of money returned to banks indicates that black money holders have managed to channelise their illegitimate money into mainstream
- The tax department is inefficient to catch the tax evaders and lacks manpower to take any strict action on a massive scale
- There are enough loopholes in the system allowing black money holders to survive
However, the Government reiterated that the country would benefit from this unprecedented operation in the long run.
Now the question is, why does it still believe
demonetisation was a success?
For a moment, let’s think from the Government’s perspective…
Post demonetisation, black money holders had three options:
- Forgo the money
- Deposit cash in banks and opt for Pradhan Mantri Garib Kalyan Yojana (PMGKY)
- Take a gamble and deposit the money in banks; with luck the tax authorities remain inefficient
Now it’s been emerging that those who exercised the first two options are relatively safe. However, tax evaders who grossly underestimated the ability and intent of the tax authorities are likely to receive a nasty surprise.
Here’s why…
As per the data from the finance ministry, 1.09 crore bank accounts received deposits between Rs 2 lakh and Rs 80 lakh with an average ticket size of Rs 5.03 lakh during the 50-day window to deposit the demonetised currency.
On the other hand, 1.48 lakh accounts received deposits of more than 80 lakh with an average ticket size of 3.31 crore. And the Government remains hopeful about improving the tax collection with these data inputs.
Prima facie, it appears that either the Government has received a good response to PMGKY, a key driver of the deposit growth after demonetisation, or it has been gathering concrete evidence against tax evaders.
The Income Tax Department (ITD) is using big data analytics to collate all the information available on a particular person likely of tax evasion. For example, if the asset ownership or spending pattern of an individual is alarmingly misaligned with his/her income profile, ITD may swing into action.
Going forward, ITD is likely to review joint property ownerships,
mutual fund investments, bank deposits etc. using PAN details, common address, and mobile number among others.
ITD has been mulling over launching a sting operation to simultaneously carry out a scrutiny of accounts of companies, directors, and their employees. The operation of this size is expected to help ITD find out if the tax evaders have used proxies to channelize their illegitimate wealth.
In the aftermath of demonetisation, many employers, especially in the unorganised sectors paid their employees salaries of upto 6 months in advance to route the unaccounted cash. At the time of depositing cash into their own bank accounts, tax evaders generated backdated bills. Besides, the taxman may look into important numbers such as automobile sales, jewellery sales, and club memberships among others to gauge how black money was routed post demonetisation.
In this context, the feedback shared by one of the tax officials, on the condition of anonymity has been quite revealing.
“The tax department has received complaints from individuals who were forced to make such deposits by their employers. But data analytics will help us establish more connections,” he said.
Taxmen haven’t been as resolute and active ever before. If ITD achieves any success in nabbing tax evaders, assessees may start taking tax rules more seriously.
Point to note
Time and again, the Government has maintained that the honest taxpayer won’t be troubled for anything. Echoing these views, Mr Sushil Chandra, the Chairman of Central Board of Direct Taxes (CBDT) said,
"There is no need to fear for any genuine person. We will ensure there is no harassment to a genuine person."
Under ‘Operation Clean Money', ITD has sent out notices to the suspected tax evaders already, seeking their prompt response. The statement issued by the finance ministry on this subject cited some interesting facts. According to which, “This exercise has identified around 4.84 lakh taxpayers not yet registered with the e-filing portal. SMS have been sent on the mobile number of these unregistered persons.”
Should you be worried?
Absolutely not, if you have disclosed all your income and paid taxes honestly. For small discrepancies in the collated information, ITD is unlikely to knock your door.
However, if you have bought luxury cars, or have been holidaying abroad frequently; there is a reason to be worried if you have under-reported your income or haven’t filed any income return.
It seems, the Government has been nagging ITD to create an integrated data bank. Once the ground level infrastructure falls into proper place, the tax department may start taking stringent measures of higher magnitude to catch tax evaders.
The message is simple: more you try to escape, stronger the evidence you would leave behind; therefore, don’t try to outsmart the ITD. Taking advantage of technological advancement, ITD has been closing all ‘escape-routes’ fast.
If you wish to live a stress-free life; here’s a small piece of advice for you:
It’s better to be penny-foolish and pound-wise, rather than being other way round.
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