Currency withdrawal: 50% tax, 4-year lock-in for unaccounted deposits

The change in tax law will empower tax officials to impose a minimum 50 per cent tax and a 4-year lock-in for half of the remaining amount of unaccounted or suspicious deposits.

By: ENS Economic Bureau | New Delhi | Published:November 26, 2016 4:06 am
demonetisation, currency withdrawal, india tax laws, tax laws india, tax fraud, india tax fraud, india tax fraud penalty, india news While this structure will apply to voluntary disclosures, a higher rate of tax and penalty of total 90 per cent tax will be imposed on those who do not disclose their unaccounted cash deposits voluntarily.

The government proposes to introduce amendments to the Income Tax Act in Parliament next week that will enable it to take penal action against those who made unaccounted cash deposits of scrapped high-denomination currency notes after November 8.

The change in tax law, a month after the government’s one-time compliance window under the Income Declaration Scheme came to an end, will empower tax officials to impose a minimum 50 per cent tax and a 4-year lock-in for half of the remaining amount of unaccounted or suspicious deposits, two persons familiar with the development said.

While this structure will apply to voluntary disclosures, a higher rate of tax and penalty of total 90 per cent tax will be imposed on those who do not disclose their unaccounted cash deposits voluntarily.

These I-T Act amendments were discussed in the Union Cabinet meeting, chaired by Prime Minister Narendra Modi, on Thursday night. “The government will introduce amendments to the Income Tax Act giving effect to this in the ongoing session of Parliament,” a source said, adding that these amendments are likely to be introduced on Monday or Tuesday after seeking the President’s nod.

After the government’s announcement of withdrawal of old Rs 500 and Rs 1,000 notes, the government had stated that cash deposits above the threshold of Rs 2.5 lakh until December 30 will be under the scanner of tax authorities. The tax authorities had said a peak rate of tax and 200 per cent penalty would be levied on such cash deposits originating from unaccounted income made during November 10-December 30, but many experts raised questions on the 200 per cent penalty lacking legal validity.

As per amendments to the Income Tax Act discussed by the Cabinet on Thursday night, the government proposes to impose a 50 per cent tax on voluntary declaration of such unaccounted cash deposits above a certain threshold, while half of the remaining deposits, or 25 per cent of the original deposit, will not be allowed to be withdrawn for four years, sources said.

The government is also contemplating issuing a bond in which the 25 per cent ‘lock-in’ money would be parked and can be withdrawn only 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, sources said.

The proposed changes in the I-T Act come after the Ministry of Finance last week warned of strict action against
tax evaders using other people’s bank accounts to convert their black money into new denomination notes and those persons who allow their bank accounts to be used as a route for conversion of black money into white.

The Pradhan Mantri Jan Dhan Yojana accounts, which have seen a surge of Rs 21,000 crore in deposits since the demonetisation announcement, have been seen as the primary route for conversion of black money into white. As a step to prevent such routing of unaccounted funds, the government had stopped over-the-counter exchange of old currency notes in banks from Thursday midnight while allowing deposits to be made without any ceiling.

The government’s latest move is being seen as a measure to tax those who did not disclose their unaccounted income in the one-time compliance window under the Income Declaration Scheme which ended on September 30.

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    Earthkeeper
    Nov 26, 2016 at 1:52 am
    Locked in for what? lt;br/gt;Oh I forgot you just waived off some really big loans
    Reply
    1. S
      Satendra kumar
      Nov 26, 2016 at 1:43 am
      The central government legal binding with all the legal notes deposited.The timeframe for 4 years that you can't make a withdrawal plus all the penalty fines and taxes seems very constructive reliable .Implemention of laws will make the system workable.
      Reply
      1. N
        Nagaraju
        Nov 26, 2016 at 12:35 am
        Govt has started a great war against corruption and black money which is a great act. But the way the process is implemented in a country where 75% potion are used to cash based transaction this can lead to social revolution as the govt instead of controlling black money they are controlling the way a man or woman lifestyle in this country. Please get the change in the insution where people develop to live accordingly. Govt should bring law or rule for the use of plastic money or cheques or DD's where ever it is 100% feasible and can avoid corruption for example.. educational insutions, property deals, vehicle deals where huge amounts of cash get exchange. Restriction on receiving money with a minimum amount limitations at places like bar and restaurants, grocery stores, movie theatres, air train and bus travel and transport tickets, hotels and retail outlets. Levy service charge on cash transaction and no service charge on card/cheque transaction. Encourage people to move to world of plastic money. This may take time but one day you see a society using clean and clear transaction. Society should fight against corruption and black money. What is happening in this country is a person try to tell to 120 crore mes that he alone is fighting against corruption. We need to understand how he reached this position. Really no corruption???. Please don't insult atleast human beings.....
        Reply
        1. K
          Kiran Singh
          Nov 26, 2016 at 1:24 am
          Each and every time the amount deposited in the Jan Than yojana is highlighted. Please also analyse the average amount deposited in the account . It might be not more than rs 10000. Kindly take into account if an average person is forced to surrender all the life or generation saving this 10000 amount is not seems to be more. lt;br/gt;So kindly if highlighting the Jan Dhan yojana kindly consider the average deposit also.lt;br/gt;lt;br/gt;If a moratorium on deposit less than 2.5 lakh. We just ume the situation that a poor person has saved for the many year but not proficient in banking lost everything. He might save the amount for daughter, Sister, brother's education, marriage etc.lt;br/gt;It may be suicidal for them as below 2.5 lakh deposit in account mainly are BPL, poor, or medium family. They may not explain but really they have save. Doubting everyone may not be justified. Government should try to catch the big fish.
          Reply
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            neeraj agrawal
            Nov 26, 2016 at 7:46 am
            he was sanctioned loans despite being defaulter during previous regime.
            Reply
            1. A
              Arun
              Nov 26, 2016 at 3:20 am
              Henceforth this RSS govt cannot p any laws in the Parliament.
              Reply
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                Arvind Bhaskar
                Nov 26, 2016 at 2:36 am
                I donot know of any waiver. If you know please elaborate.
                Reply
                1. A
                  Arvind Bhaskar
                  Nov 26, 2016 at 2:39 am
                  Let the account holder explain on case to case basis.
                  Reply
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