Jaitley says deposits above Rs 2.5 lakh to be taxed, PC questions Rs 2000 note
People can deposit as much cash as they want in banks to get new notes but the money will be open to tax scrutiny, finance minister Arun Jaitley said on Wednesday, exuding confidence the ban on high-value bills will eventually help expand the economy and boost revenues.Updated: Nov 10, 2016 10:23 IST
Cash deposits above Rs 2.5 lakh could attract tax besides a 200% penalty in case of income mismatch, the government said on Wednesday, unveiling more measures to combat the “disease” of corruption and drain out illicit cash from the economy.
The announcement came a day after Prime Minister Narendra Modi created a flutter by abolishing 1000 and 500 rupee banknotes in a move to flush out money hidden from the tax man. New 500 and 2000 rupee bills will replace about 86% of all currency in circulation by value.
Finance minister Arun Jaitley said on Wednesday that people can deposit as much cash as they want in banks to get new notes but added the money will be open to tax scrutiny.
Hours later, revenue secretary Hasmukh Adhia spelt out how the government proposed to go about the business.
“We would be getting reports of all cash deposited during the period of 10th November to 30th December above a threshold of Rs 2.5 lacs in every account. The department would do matching of this with income returns filled by the depositors. And suitable action may follow,” Adhia told reporters.
Amounts that don’t match income sources will attract 30% tax and a penalty of 200% on the taxed amount, he told HT, adding that prosecution will be decided on a case to case basis.
Successive governments have struggled with under-reporting of taxes, seen as a major hurdle in expanding state revenues, as well as with growing undisclosed incomes to avoid taxation.
Jaitley said the ban on high-value banknotes will change this.
“The credibility of the Indian economy will increase,” he told journalists, adding the move will also boost tax revenue in a country where just 3% of the population pays tax.
Modi’s announcement led to immediate upheaval, with millions of people holding cash savings hurled into uncertainty and fear, especially the poor who do not have bank accounts and keep their money in cash.
It’s a concern opposition parties have voiced, with Congress leader and former finance minister P Chidambaram saying the ban was unlikely to help drain illegal funds as illicit cash will now be invested in gold.
“Why the government chose to issue Rs 2,000 note is a puzzle to me,” he said on Wednesday.
Congress vice-president Rahul Gandhi too questioned how the ban could help farmers, small traders and housewives—the sections that usually keep liquid cash with them for daily expenses.
Allaying fears of harassment of people trying to change the banned banknotes, Jaitley said the law will take its course if the deposited cash is found illegal but assured the honest had nothing to worry about.
“If the money is legitimate which had been previously withdrawn from bank or earned legally and saved and had been disclosed, there is nothing to worry about,” Jaitley said.
“The small amounts that people will deposit like Rs 25,000, 30,000 or 50,000 lying in house for expenses, whatever money could be there for meeting normal family expenses they need not worry.”
Chidambaram, though, warned the plan could turn counter-productive if honest people were inconvenienced or harassed.
He said the government and banks will be tested on how well they handle the transition.
Chidambaram also described the government’s argument the ban will squeeze funds for terrorist groups as an “exaggeration”.