Expect all demonetised money to come back to system: Revenue Secretary Hasmukh Adhia

Questions over cost of exercise; will tax black money hoarders, says Adhia

Written by Khushboo Narayan | Mumbai | Updated: December 8, 2016 9:50 am
demonetisation, demonetisation crisis, black money india, demonetisation black money, Hasmukh Adhia, black money, white money, black money conversion, tax evasion, Revenue Secretary, india news Revenue Secretary Hasmukh Adhia

The government expects the entire money in circulation in the form of currency notes of Rs 500 and Rs 1,000 which have been scrapped to come back to the banking system so that the tax authority can trace the transactions and tax black money hoarders, Revenue Secretary, Hasmukh Adhia said on Tuesday. This, effectively, undermines the prospect of any windfall gains accruing to the government arising out of part of the demonetised currency remaining outside the banking system.

Soon after the government had announced the note cancellation, some experts had projected that a part of the demonetised currency notes — of a value of Rs 14.17 lakh crore at the end of March 2016 — would not return to the banking system.

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In a report, the SBI estimated that Rs 2.5 lakh crore may not return to the system. Based on such calculations, reports emerged that this would lead to substantial gains to the government considering that this would lower the liabilities of the RBI. This, in turn, it was argued could transfer a higher surplus to the sovereign, opening up the prospect of spending on infrastructure, or capitalisation of banks.

An estimated Rs 11 lakh crore has been deposited in banks so far and if the all the high-value notes in circulation comes back to the banking system as the Revenue Secretary indicated today, more questions are bound to be raised as to the cost and impact of the exercise of demonetisation spread over 50 days.

That’s because the Centre for Monitoring the Indian Economy or CMIE, an economic forecasting agency, has pegged the cost of demonetisation for 50 days from November 8 to Dec 30 at Rs 1,28,000 crore which includes loss of business or sales, cost to households, the expenses for printing fresh currency notes to the government and the RBI besides for banks. The onus will be on the government to show that the gains, including in the form of stiff penalties on those found violating rules, negate the cost of the exercise.

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“Do you think that by simply depositing money in the bank account makes black money into white? It doesn’t. It will become white when we charge taxes, when the Income Tax department can reach up to them by issuing a notice and questioning them…The expectation is that the entire money which is in circulation has to come to the banking channel so that we can trace the transactions and trace the entire money, who does it belong to and has tax been paid on it. This being the idea, some money has come back in the banking system and we still have time to go,” said Adhia on the sidelines of a conference in Mumbai.

“No black money hoarder will be spared. If someone has deposited Rs 50,000 in the accounts of 500 people each, he will also be caught,” said Adhia.

At the end of November 27, Rs 8.44 lakh crore in abolished notes have already come back to the banking system.

Adhia said that government agencies will also take action against bankers and others who are colluding with black money hoarders to illegally convert the abolished currency into legal tender. On the ongoing investigations into the Panama Papers leaks, Adhia said all BRICS countries are finding it difficult to source information from certain advanced countries that house the bank accounts of companies registered in Panama.

“The problem that each country is facing that while the registration of entities are in Panama, most of these entities are not having their bank accounts or their business enterprises in Panama. Most of the bank accounts of these entities are in some other advanced countries, so all of us are trying to get information from those countries. We are invoking the information exchange agreements. In some cases the response is quite good and in some other cases…there is a time lag in the response of some countries. That is the difficulty that we all are facing,” said Adhia.

Clarifications & corrections:

In response to the December 7 front page report “Expect all demonetised money to come back to system: Revenue Secy”, Dr Hasmukh Adhia, Revenue Secretary, Ministry of Finance, said:

It is very strange that only Indian Express has reported this statement in the headlines while no other newspersons who were present there have reported this.

I would like to emphasise that I did not make any such prediction that the Government expects all demonitised money to come back to the system. The question asked was that ‘what happens if all the money is coming back to the banks’. In response, I said that ‘merely bringing money to banking channels does not make it white until tax is paid on the same’. I, therefore, mentioned that even if all the old money comes to the banking channels, Income Tax Department would be able to see the trail of money coming from various individuals and we would be able to recover tax on the same along with penalty, wherever applicable.

While all other newspapers, including PTI, have reported this as the main substance of my reply, only Indian Express seems to have drawn a different conclusion of this reply and has put this in form of a headline as if the Government has already concluded that the entire money is going to come back. I may like to point out that it is not possible for me to make such a prediction and there is no reason why I should make such prediction prematurely.

Our Correspondent replies:

The report was based on Revenue Secretary Hasmukh Adhia’s response to a reference by a journalist to media reports that the entire demonetised money would come back to the system. Adhia told journalists on the sidelines of a conference in Mumbai: “Do you think that by simply depositing money in the bank account makes black money into white? It doesn’t. It will become white when we charge taxes, when the Income Tax department can reach up to them by issuing a notice and questioning them… The expectation is that the entire money which is in circulation has to come to the banking channel so that we can trace the transactions and trace the entire money, who does it belong to and has tax been paid on it. This being the idea, some money has come back in the banking system and we still have time to go.” This quote was accurately reproduced in the news report. Adhia had also said, “We can only know the final position when the scheme closes on December 30.”

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  1. P
    Prabodh
    Dec 7, 2016 at 11:44 pm
    What our beloved prime minister has done is with good intentions. This is one fact which nobody can doubt. lt;br/gt;But some very significant improvisation of our banking law is needed. lt;br/gt;Cashless society is good. But what of the cash deposits or even amount deposited by other means as cheques rtgs etc etc .lt;br/gt;Enactment of law for the quarantee and safety of the money in the banks are of utmost priority.lt;br/gt;Suppose a bank defaults .rbi quarantees only 1 lakh amount as a quarantine.lt;br/gt;For saving accounts.lt;br/gt;And no guarantee for current accounts..lt;br/gt;This can sometimes result into some fatality and risk to the depositors.lt;br/gt;The only concerns are that a few examples have occurred in Europe where banks have gone bust. And the depositors money confisticated. And in return they forcibly handed over shares of that bank.lt;br/gt;Can the finance dept or RBI give clarifications on this matter to the general public./lt;br/gt;from whatever I have been knowledges by some study is that it is reported that practically all banks globally are bankrupt.lt;br/gt;I hope our memory does not fade about the recent bank acts in Greece.lt;br/gt;Our prime minister is iron willed and has the capacity to protect the public interest.
    Reply
    1. M
      MyTake
      Dec 7, 2016 at 9:28 am
      .. After getting complain of any fraudulent transaction put the card on "notice" asking the "owner" to furnish details of address PAN/Adhar number (biometric information in absence of card) which will be checked against Data in Central Server. Until the added information is furnished and matched against central server next transaction will not be approved. In case of mismatch report it straight to the police (make it automatic reporting to police before even the seller knows it) then refuse the purchase. Once the word is out of such a system in place, everyone with card will become honest as good as priest in any good Temple! What lessons in morality someone failed to get in school, electronic eye will fill up that gap!lt;br/gt;lt;br/gt;Then follow the lead. Give it as a project to High School Student in the locality! They will do it with much fun and make them responsible citizen.lt;br/gt;lt;br/gt;Sound easy enough?
      Reply
      1. M
        MyTake
        Dec 7, 2016 at 9:08 am
        Just make a provision to wave the card for any purchase below 500 Rupee and go.lt;br/gt;lt;br/gt;Any fraudulent transaction? Govt. can return the cost but get to the bottom to catch the crook and recover an amount = Lost Amount X1000 (or a minimum of $5000) as penalty. Problem solved for ever.
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        1. M
          MyTake
          Dec 7, 2016 at 9:11 am
          They have done that all their life -getting freebies!
          Reply
          1. M
            MyTake
            Dec 7, 2016 at 6:46 am
            Just print the ones that do not return and give it to poor! lt;br/gt;Case closed in 3 weeks time!lt;br/gt;Think about how to take off circulation all notes above 100 Rupee in one years time. This will help make transactions cashless as something very normal!
            Reply
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              abhishek
              Dec 7, 2016 at 1:49 am
              Initially Govt told to all of us minimum 4lakh carore will not come,witin few weeks their tone changed now they are saying they are upset with the role of CA,farmers account holder,jan dhan account holders,Exporters and importer current account holders, Etc...Now most of the experts are saying minimum 17000 carore will come back as white money.this is directly hit Govt and RBI calculation.this will increase liability of Govt with more than 4lakh carore.lt;br/gt;Who will take responsibility of this mess?
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                abhishek
                Dec 7, 2016 at 12:12 pm
                Denomination is a big eye wash by MODI...just to negate it's inefficiency and to improving his image.
                Reply
                1. K
                  kris
                  Dec 7, 2016 at 11:29 am
                  IDS scheme's 2 lak crore is not cash - it is ets
                  Reply
                  1. K
                    kris
                    Dec 7, 2016 at 10:58 am
                    if you dont reside in india - then write comments on hardhsip faced by ordinary indians?
                    Reply
                    1. K
                      kris
                      Dec 7, 2016 at 11:00 am
                      in bangalore as bachelor i never used cash - apart from paying rent and buying in kirana store
                      Reply
                      1. K
                        kris
                        Dec 7, 2016 at 10:56 am
                        inorder to win over corrupt some corruption is necessarylt;br/gt;but it is intention to fight corruption that matters
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                          Anuradha Kalhan
                          Dec 7, 2016 at 1:57 am
                          Finally someone from the ESTABLISHMENT has spoken some sense!!lt;br/gt;lt;br/gt; For estimating benefits from demonetization we are all are going to have to wait and watch over many, many months. Hopefully no new surgical strike will happen in the interim to divert our attention from this.
                          Reply
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                            arc
                            Dec 7, 2016 at 8:22 am
                            It is only an admission that all black money has been laundered and turned into white. So much for fighting parallel economy.
                            Reply
                            1. A
                              arc
                              Dec 7, 2016 at 10:00 am
                              And Chaddis have been working hard to quietly appropriate those 15 lakh. Very stressful work indeed.
                              Reply
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                                ashok s
                                Dec 7, 2016 at 2:20 am
                                All clifications of money deposited into various accounts is need of the hour
                                Reply
                                1. A
                                  ashok s
                                  Dec 7, 2016 at 2:01 am
                                  Loss will be at least 4lacs CR's if GDP shrinks by 2 notches, first indirect and then direct tax Kitty of govt will be effected.
                                  Reply
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                                    ashok s
                                    Dec 7, 2016 at 2:19 am
                                    Only grace saving for govt will be to extensively raid the businesses like builders, jewellers services providers, etc etc and conduct a surveys of pre and past business doing methodology
                                    Reply
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                                      B.Chandra shekara
                                      Dec 7, 2016 at 4:25 am
                                      Government is responsible to catch thieves irrespective of what it costs. If government is benefited out of it, it is bonus. Nevertheless, DM can not be termed as futile exercise
                                      Reply
                                      1. b
                                        blogger3110
                                        Dec 7, 2016 at 5:41 am
                                        The government should levy a transaction tax for withdrawal from accounts where old notes have been deposited and restrict withdrawal from Jandhan accounts without PAN
                                        Reply
                                        1. S
                                          Satyendra Babu
                                          Dec 7, 2016 at 8:33 am
                                          The Govt has messed with growth , favorable Crude prices,Good tax collection, BOP in comfort, INFLATION in control that too measured on CPI ! Fiscal Deficit easily achievable, Aadhar,UPI, was taking shape... Paytm and Mobikwik and a host of other payment gateway/Banks and wallets would have spetnt a LOT of promotional money also called BURN money from foreign investors.. BUT the govt in a fit of adventurism ... [Probably could not take these positives that had Accrued from Previous UPA regime which on a average has Given the Highest growth rate without tinkering the Parameters? ] Has bought upon itself and the country and the poor and the marginalised and the informal sector a GR8 calamity? Swayam Kruth Aparadha in the form of #Demonetisation ! History will not be kind to FM,RBI gov, CEA, Niti Aayog, Revenue sec, and the entire North block? PM will be excused for his Charisma!? ha
                                          Reply
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                                            anObserver
                                            Dec 7, 2016 at 3:47 pm
                                            Wonder what the BJP has done with the (undeclared) donations that the party obtained from business folks, is that not black money? Will the govt take action against the BJP?
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