Prime Minister Narendra Modi’s note ban caught many black money hoarders off guard, who were forced to deposit the unaccounted money in banks and now pay a hefty tax.
Finance ministry sources said the government may mop up over Rs 8,000 crore from just taxes on black money or unaccounted cash deposits in banks so far this financial year.
“The tax from just black money deposited in banks will easily surpass Rs 8,000 crore,” a senior official said requesting anonymity. Another official said the number could touch Rs 9,000-10,000 crore at the end of March 2017.
“So far, we have mopped up a much higher 21% in tax returns and growth in self-assessment tax has also been satisfactory,” Central Board of Direct Taxes chairman Sushil Chandra told Hindustan Times.
During April-February, income tax collection grew 19.5% to 2.65 lakh crore. During the same period last year, income tax collections were up just 11.3% while the growth was 8.4% in 2014-15.
In November alone, income tax collections jumped 40.7% from the same month a year ago, and grew 18.3% in December, 11.9% in January and 17.1% in February.
The higher tax mop up was despite the fact the economic growth is estimated to slow to 7.1% during 2016-17, from 7.9% of last year, according to the estimates of the CSO.
The net collection growth tapered after November because tax authorities paid 40% higher refunds.
“The government could pay higher refunds also because of higher tax collection,” Chandra said adding Rs 1.54 crore was paid in refunds so far this financial year.
On November 8, Modi announced scrapping of Rs 500 and Rs 1,000 notes as part of the combat against the menace of black money, corruption and terror funding.
The announcement led to a mad scramble for exchanging the demonetised notes at banks for new cash.
However, many black money hoarders got trapped as the government hiked the tax rate on unaccounted cash to as much as 85% under the Pradhan Mantri Garib Kalyan Yojana or the second Income Disclosure Scheme. The punitive tax on black money was 75% in the first scheme that ended in September.
Higher tax inflows emboldened the government to spend more on pension and fertiliser subsidies at the fag end of the financial year.
On Friday, finance minister Arun Jaitley sought Parliament’s approval for extra spending of Rs 14,786 crore.
“Given the higher tax collection from Income Disclosure schemes, the additional spending will be easily be funded without widening the fiscal deficit,” a finance ministry official said.
A robust tax collection is expected to help the government narrow the fiscal deficit to 3.2% of GDP in 2017-18 from 3.5% this financial year.