Recalling 85% of currency in circulation is no easy decision for any government. Black money is one hot potato that our governments have kept away from. Our citizens have gone through bouts of shock, fear and dismay after the demonetisation drive. And some people have been calling the move out rightly unjustified.
The demonetisation announcement has earned itself many metaphors, ‘surgical strike’ being one of them.
But is this a sudden move or is it a carefully planned master stroke?
What can we now expect from this belligerent government?
The income tax department has meticulously planned every step of the way in the past year or so. It didn’t grow tentacles overnight, but has been slowly feeding itself to become all too powerful. Putting measures in place to curb tax evasion. Coaxing people to bring their taxes in order.
Take a look at the timeline of income tax reforms that have led to Demonetisation –
April 2015 – Undisclosed foreign income and assets bill – A new scheme that urged resident taxpayers with foreign assets/incomes to disclose them and pay penalty if these were not reported. The penalties under this new act were steep (tax rate of 30% and penalty of 90%). The scheme was failure on that account. Read more here.
July 2015 – Bank account disclosure in tax return forms – A new disclosure was added in tax return forms asking for bank accounts details of taxpayers. It asked for bank account number, IFSC code for all your bank accounts. Causing a bit of an uproar with information that taxpayers held too dear. Read details here.
July 2015 – Reporting of foreign assets and income – Via this change in income tax return forms the tax department made it compulsory for resident individuals with foreign accounts, foreign assets and income to submit details of their holdings in their income tax return. Read more about schedule FA here.
November 2015 – Non-filers monitoring system – The income tax department launched a non-filers monitoring system, where it tracked down people via AIR filed by banks, through CIB (centralised information branch) or through TDS statements. Anyone who it thought could have earned more than Rs 2.5lakhs based on their investments, expenses, savings or purchases was asked to come forward and explain them. It urged people to file a return if their income crossed the minimum taxable threshold of Rs 2.5lakhs. Read in detail here.
February 2016 – Income tax declaration scheme – The tax department opened an income declaration scheme from 1st June 2016 to 30th September 2016 urging people to declare their unaccounted incomes and assets. This scheme promised no scrutiny or enquiry for these declarations. And levied a total tax of 45% on such income. Besides it offered that taxpayers shall not be prosecuted, under income tax or wealth tax or benami transactions act. Read more here.
April 2016 – Introduction of assets and liabilities schedule in tax returns – The tax department introduced a new schedule in tax returns called Schedule AL or assets and liabilities schedule. Here taxpayers were asked to disclose details of what they own at the price it was acquired by them. This was only applicable to those with annual income in excess of Rs 50lakhs. Read more here.
May 2016 – Taxpayers asked to verify old tax returns – As a last and final chance to taxpayers, the income tax department allowed delayed verification of returns submitted for FY 2008-2009 till FY 2013-14. A first from the tax department, that allowed old returns to be verified and brought in order. Pushing you to bring the house in order. Read in detail here.
July 2016 – Issue of letters seeking details of high value transactions – The income tax department unearthed 90lakh transactions made between 2009-10 to 2016-17 of high value such as; cash deposits of Rs 10lakhs or more in a savings bank account, sale/purchase of immovable property like a house valued at Rs 30lakhs or more and other similar transaction reported in AIR. Read in detail here. AIR forms a part of your Form 26AS.
Each one of these moves have revealed that Modi and his government are very serious about unaccounted money and income. Perhaps, they will leave no stone unturned to bring people in the tax fold and force them to pay up their tax dues.
This leaves us with a very big question about what we can expect from this aggressive government.
- Barring holding cash beyond a certain limit – Likely the government can impose a regulation about maximum cash that individuals can hold. Making it unlawful to hold large amounts.
- Curbing cash dealings – A significantly large proportion of our transactions happen in cash. The government could plumb in more measures to curb this. The unified payments interface is a step in that direction. The rupaye credit card is certainly one of them. Could they make your aadhaar card similar to a debit or credit card? Certainly, that’s possible.
- Going ballistic on foreign assets – The government launched its undisclosed foreign income & assets which met with lukewarm response, thanks to steep penalty. But our guess is, this could be its next stop. It has signed up various agreements with other countries(including USA) that allow it to access information about foreign bank accounts and asset ownership. Without doubt they would pursue wherever they see tax evasion.
- Doing a real estate review – The cynics of the demonetisation drive have been complaining about how those who converted cash to assets have now got away. Though property prices are likely to tumble, but this drop is not likely to make up for loss of revenue to the govt. With the passage of Real Estate Act, 2016, the government has sharpened its axe on builders. Now remain the prolific buyers of property, who have managed to park all their funds in real estate. The government could possibly launch a massive exercise unearthing ownership information of all assets and linking those up with disclosed income. The tax department also have a Schedule AL (assets and liabilities) in tax returns to corroborate this with.
India,we hope, will now leap-frog into a cashless and white economy. Don’t worry about the rural and low income earners, they will benefit the most out of this and will embrace these changes whole-heartedly.
Finally, the government has instilled fear of tax evasion and under reporting of income. Feelings that linger on for a long long time….