Terming the declarations of Rs 65,250 crore under the black money disclosure scheme as a “tip of the iceberg”, tech investor T V Mohandas Pai feels the government now needs to demonetise Rs 1,000 notes and abolish capital gains tax on property and gold sales to drive more money into the formal system.
“I think it’s a tip of the iceberg because India has physical cash in circulation of Rs 17 lakh crore…that is 12 per cent of this year’s GDP. Very, very high for any country,” the former Board member of Infosys told PTI.
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Of this Rs 17 lakh crore, 85 per cent is in Rs 100, Rs 500 and Rs 1,000 notes. “I would estimate that at Rs eight lakh crore of the Rs 17 lakh crore – around 50 per cent – is black money,” he said.
“The government should look at demonetising Rs 1,000 notes and come out with a scheme now to say that anybody with Rs 1,000 notes should deposit them into banks regulated by RBI (and not cooperative banks) with PAN and Aadhaar numbers,” Pai, former CFO of Infosys, said.
He said the government must abolish capital gains tax on the sale of property, if held for more than three years.
“Black money report released in Parliament says that 40 per cent of all black money generation happens in real estate. One major factor is capital gains tax. If capital gains tax is abolished, the seller will demand full cheque payment because he does not have to pay tax and the entire sector will be reformed in three years,” Pai said.
According to him, India has USD one trillion (Rs 70 lakh crore) of gold. “Total gold value of India at 25,000 tonnes is Rs 70 lakh crore”. India imports 750-1000 tonnes of gold every year.
“The government should have a scheme to say if anybody has got gold on their balance-sheet declared for wealth tax or otherwise and hold it for three years and sell, there will be no capital gains tax. This will make more and more people look at gold as an investment rather than gold as an asset to hold blackmoney because if it’s made tax-free it will be like stock, it will drive black money out of circulation,” he said.
In such a scenario, imports would come down because there would be large local sales. Out of 25,000 tonnes, even if three per cent is sold locally, it would be 750 tonnes, noted Pai, member of the Board of Directors of NSE.
“These reforms – de-monetising Rs 1000 notes, abolition of capital gains tax on property and abolition of capital gains on gold sales by people who hold it- will reduce black money in the next five years by 40 to 50 per cent,” he said.