With demonetization of Rs 500 and Rs 1,000 currency notes, the government has directed Income-Tax Department to coordinate with all banks and furnish details of individuals who exchange cash amount of Rs 2 lakh and above.
“A key reason for scrapping these two currency denominations is to curb the huge menace of fake currency, tackle black money and make India a cashless economy,” said a senior I-T department official.
The object was also to make Indians tax complaint, which will eventually lead to higher revenues for government, he added.
The tax department has been asked to keep record of every individual along with his/her PAN card details and tally it with the tax filing. Accordingly, the department will impose penalty, which could be between 30 per cent and 120 per cent, depending on the source of income.
India has physical cash circulation of Rs 17 lakh crore, of which 88 per cent is Rs 500 and Rs 1,000 notes. Official data suggest that 40 per cent of black money is generated in real estate, while stock market and bullion transactions are other big sources.
Estimated total value of gold in India at 25,000 tonnes is Rs 70 lakh crore. India imports 750-1,000 tonnes of gold every year.
Among the key reasons that triggered the move was the moderate response to Income Declaration Scheme (IDS), which charged a one-time effective tax rate of 45 per cent on undisclosed income or property, giving a chance to domestic taxpayers to declare undisclosed income or assets by September 30. The scheme offered immunity from prosecution under the Income Tax Act, Wealth Tax Act and Benami Transactions (Prohibition) Act.
According to estimates, the government collected only Rs 65,250 crore, resulting in tax revenue of Rs 30,000 crore, about 0.2 per cent of GDP. The government has also tried to deal with the currency problem where 250 out of every 1 million notes are found fake, according to the data submitted by the Union Home Ministry to Parliament on May 3.
In 2015, investigative agencies and the Reserve Bank of India had recovered 632,000 fake currency notes with a value of Rs 30.43 crore. In 2015, various intelligence agencies filed 788 cases of smuggling and circulation of fake currency notes, in which at least 816 people were accused. It has been learnt that Delhi and Uttar Pradesh together accounted for over 43 per cent of fake currency recovered.