Demonetisation to usher in tax terrorism?
Moneylife Digital Team 24 November 2016
As per the amendments, the Central Board of Direct Taxes (CBDT) has authorised Income Tax Officers (ITOs) powers to be an I-T authority as against Assessing Officer (AO), which may be misused by ITOs to send notices or scrutiny notices to several genuine taxpayers, says Nikhil Vadia, a Chartered Accountant. He was speaking at a seminar-cum-guidance session on the recent demonetisation of high currency notes and its implications organised by Moneylife Foundation in Mumbai. 
As per Rule 12E introduced on 16 November 2016, “The prescribed authority under sub-section (2) of section 143 shall be an income-tax authority not below the rank of an Income-tax Officer who has been authorised by the Central Board of Direct Taxes to act as income-tax authority for the purposes of sub-section (2) of section 143.”
While section 143 (2) permits the AO or I-T authority to send such notices, there was a six months limitation from the date of expiry of that financial year, to issue such notices to assessees. With the ITO becoming authority, there may be surge in notices being sent to taxpayers, he said.
Another issue, Mr Vadia highlighted was about reporting period for banks to disclose cash deposits in accounts. “By 31 January 2017, banks are required to report all cash deposited above Rs2.50 lakh in savings account and Rs12.50 lakh in current account from 10 November 2016 to 30 December 2016. Therefore, those who deposited or depositing cash in banks, can expect notices by February 2017” he said. 
While explaining the reasons for the government undertaking demonetisation over night, he touched upon how terror funding, influx of counterfeit notes from neighbouring countries and non-taxed money held by residents are the main reasons. “Still demonetisation is a one time exercise and unless followed by other measures, black money will come back in six to 12 months “, Mr Vadia, who as an expert answers queries on Moneylife Foundation’s Tax Helpline, said.
He briefed upon the history of demonetisation undertaken in India in 1946 and 1978. “In comparison to a mere 30% share of Rs500 and Rs1,000 denomination notes in the economy in March 2002, in March 2016 a sky-rocketing 85% of high denomination notes existed in the economy,” he added.
Mr Vadia then answered the most pertinent question on everyone’s mind, which is “How much cash I can deposit?” 
“The Government has said up to Rs2.5 lakh deposited between 10 November and 30 December 2016 will not be questioned. Income tax return is to be filed for entire year of 2016-17 and cash deposits and withdrawals for entire year have to be explained. Large cash deposits with no history of previous income would be difficult to explain”, he said. He then briefed the audience about the various provisions of Income Tax Act, applicable on taxpayers.
A very pertinent clarification Mr Vadia made was that penalty is 50% of tax for under reporting 200% for misreporting of income. Tax is to be calculated as difference between income as per income tax return (ITR) filed and as assessed by Income tax officer after assessment.
Mr Vadia touched upon various penalties and provisions for prosecution applicable in case of wilful default by assesses in different scenarios. He also explained the impact of demonetisation on value added tax (VAT), service tax and Benami property transactions and cited the effective taxes payable in select cases. “The Act with respect to Benami transactions was amended on 1 November 2016 and ensures that those trying to evade the law will be taken to task”, he said. 
Mr Vadia also explained a few cases that had arisen when demonetization had taken place before. He clarified that demonetization is not an illegal act and any high denomination notes found after 31 December 2016 with any person will not be included in his or her income. He concluded the session with advising the audience to not panic and act in haste. He emphasized the need to think before depositing any money and to consult an honest tax consultant before taking any action. It is critical that people not rely on WhatsApp messages and media frenzy and believe and disseminate information from official sources. 
Hemen Parekh
6 years ago
Thank You , Narendrabhai !

Newspapers this morning report that, on Tuesday ( 29th Nov ) , government will introduce in Lok Sabha , an amendment to Income Tax Act

As per this ( expected ) amendment , Black Money holders would be able to deposit , OLD notes ( Rs 500 / 1000 ) into their OWN bank accounts, with following proviso :

# Those willing to invest in GAREEB KALYAN YOJANA Bonds :

* Deposit old notes { before 30th Dec } and inform IT DEPT, desire to avail of Bonds
* Pay 30 % tax + 20 % penalty on this " Disclosed " but " Unaccounted " money
* 25 % locked in for 4 years in Gareeb Kalyan Yojana Bonds ( at 0 % interest )
* Keep / Use balance 25 % for PERSONAL USE
* Protection from further prosecution

# Those failing to avail of GAREEB KALYAN YOJANA Bonds :

* Deposit at any time ( before or after 30th Dec ) but fail to inform IT department
* Pay 30 % tax + 60 % penalty on this " Undisclosed " AND " Unaccounted " money
* Keep / use balance 10 % for PERSONAL USE
* Face prosecution if unable to explain ( - and possible 4 year jail term )

Dear Shri Narendrabhai :

If true , what you have planned is an improvement over the type of " Amnesty " that I had suggested in my email of 15 Nov 2016 ( to you and your Cabinet colleagues ) viz ;
{ }

* Black Money Holder to deposit 100 % of his hidden / unaccounted money in specially
created Bank Accounts of :
Prime Minister Relief Fund / Armed Forces Relief Fund / Environment
Rejuvenation Fund / Pollution Solution Fund / Ban Mal Nutrition Fund ...etc
* No need to reveal identity / source of funds / Upper limit of deposit
* No prosecution but can keep / use 0 % for PERSONAL USE ( 100 % surrendered
to Govt )


Considering the following :

* As of yesterday , some Rs 65000 crore have been deposited in Jan Dhan Accounts
* At an ave of Rs 50,000 deposit per account , this may well represent 130 lakh accounts
* That is , deposit in 10 lakh account EACH DAY , for past 13 days ! And no letting up !
* But , in all , there are 25 Crore Jan Dhan accounts
* If Rs 2.5 lakh were to get deposited in each, that would amount to Rs 62.5 lakh*cr
* In a written reply in Lok Sabha last week , Minister of State for Finance , Santosh Kumar
Gangwar said that , as of Oct 31 , 2016 , 238 prosecution complaints have been filed and
and properties worth rs 18,866 cr have been attached
* Based on the information submitted by Indian Authorities to the US as part of
cooperation , the INSCR ( Integrated Network for Societal Conflict Research ) states ,
" ... the government has not won any court cases involving money laundering or
confiscations ... Money laundering investigations without a predicate offense are rarely
successfully prosecuted in the Indian judicial system and even if they are , the resulting
punishment is often minimal "
* As pointed out in my earlier E Mail ( 23 Nov ) , trying to prosecute few lakhs ( may be a
few crores ) of Jan Dhan account holders is SIMPLY IMPOSSIBLE !

In light of the foregoing and that proposed amendment to Income Tax Act , it would be
reasonable to assume that , between 01 Dec and 31st Dec , we may expect :

# Rs 10 lakh*crore to get deposited in bank accounts and declared to IT department

# Of this , Rs 2.5 lakh*crore worth of Gareeb Kalyan Yojana bonds to get issued.
How can we use this money for the ultimate Gareeb Kalyan ? Here is my suggestion :
Our 20 cr citizens below the poverty line ( BPL ) comprise 5 crore GAREEB families
If this bond amount of Rs 2.5 lakh*crore was to be deposited into the Jan Dhan bank
accounts of these 5 crore families , that would mean Rs 50,000 for each family !
And that simple arithmetic would save 12 lakh children dying from starvation each
year ! I cannot envisage a better use of BLACK MONEY !

# Political Parties handing over their own UNACCOUNTED monies to their loyal supporters
to deposit into their own bank accounts and buy those BONDS !
Retaining 50 % is any day better than losing 100 % !
Of course , when the Income Tax amendment gets introduced in Lok Sabha on Tuesday
expect the Opposition Parties to label NDA government as the biggest HAWALA
operator , who wants to compete with the road-side operators ( whose current going
rate is 30 % ) and converts your Black Money into White Money by taking 50 % cut !

Dear Shri Narendrabhai :

With the proposed Income Tax amendment , you would have won the current battle
But , in order to win the WAR ON BLACK MONEY , I request you once again to ,
{ }
26 Nov 2016 / blogs

shadi katyal
6 years ago
We have had Permit Raj and now starts the new IT officer raj. Granted black money should be not there but is it not the fact that it IT which has created such menace. Why people have foreign accounts or buy gold and hide it because they dont want IT officers to be always on their tail. Our Income Tax officers are well known to open closed files even decade past and start a case which has no foundation but harassment forces some time to bribe him and shut the case.
Such cases donot go to court and thus people suffer.
Now this will start a new era of terror from IT officers. Has any laws been amended where the even ordinary person if harassed can find some solace.
Since new Laws are more stringent for those caught , it might be cheaper to pay the IT officer than pay the full amount.
India will suffer a lot in the long run as haste makes waste is being followed.
B. Yerram Raju
6 years ago
It is not unlikely that the ensuing budget will unfold a new direct tax regime and the IT officers will look after old coffins. All citizens should get into the habit of disclosure responsibly when there will be less scope for corruption. Demonetisation by itself is no panacea for the evil of unaccounted money making its ugly presence. Several measures are hinted post January 2017.
Ashwani Kumar Aggarwal
6 years ago
Indians Should Get Together.
Expose Bribe Seekers on the Internet.( Bribe Victims Can Remain Anonymous.)
Check Fresh Generation of Black Money
Any Govt. officer convicted of corruption should be dismissed from service.
Corruption Prone Govt. Departments / Offices like RTO, Patwari etc should be identified and all their activities be put on line ( Public Domain )
Say no to Corruption / Bribes
In PWD / CPWD , there is an unwritten Code of Percentages a Contractor has to give to the SDO, XEN , SE.
Ashwani Kumar Aggarwal
Replied to Ashwani Kumar Aggarwal comment 6 years ago
Bribes Generating Posts are called , in bureaucratic parlance as, MALAI DAAR Postings.
J Pinto
6 years ago
Income Tax Officers themselves are notorious for corruption. Customs Officers help to under invoice imports. They have shifted their assets abroad using hawala. How to resolve this ?
6 years ago
Mr. Vadia has summarised the implications of demonetisation. I agree with his suggestion that the audience should not panic and not rely on WhatsApp messages and media frenzy and believe and disseminate information from official sources, which I feel is available in well edited newspapers like the Times of India and Mumbai Mirror.
6 years ago
Heading of this otherwise useful piece of reporting, is misleading. The worst form of "tax terrorism" occurred when the UPA Govt resorted to "retrospective" taxation in the Videocon case. These people were silent at that time. Just because ITOs are empowered to issue notice does not mean that normal avenues of redress available to tax payers are taken away. Honest taxpayers can always submit their explanation to the ITO. It does not make any difference whether the authority is ITO or AO. Govt has amended the rule to ensure prompt follow up of suspicious cases in the changed circumstances today. Please do not sensationalise this issue.
Replied to B. KRISHNAN comment 6 years ago
Sorry, not Videocon, Vodophone case.
Ashwani Kumar Aggarwal
6 years ago
''Check Fresh Generation of Black Money.
Any Govt. officer convicted of corruption should be dismissed from service. There should be no job security on this count.

Check Black Money in Politics / Elections Election costs, now , can be reduced to a minuscule if voting is done by Aadhar registered Mobile Phones.

What about money laundering done by Rich / Super Rich Farmers ? They do not pay any tax . Money laundering of their other incomes as agricultural income. Income Tax exemptions are only for Actual Tillers ( Plough Weilders ). But , in states like Punjab , Rich landlords give their land on Lease ( Theka ) to the landless cultivators. These absentee landlords pocket the Theka money as Tax Free. Govt should take against those Revenue officials ( Patwaris ) who show absentee landlords as actual tillers in the Girdawaris. Many NRI s who have not set foot on India for many many years are shown as Tillers . They take the benefit of Free Electricity / other freebies while negotiating Theka s.

Reduce Taxes Reduce Stamp Duty on Land Registries. During British Times , Land Registration Rates were around 1 to 2 %. ( Now , they are 7 to 10 % ). Earlier there was Law of Pre Emption ( Haq -shoofa ) where land owner of contiguous property could acquire the sold land at Land Registration Rate + 10 % or so. So , to prevent Pre emption and take advantage of Low Stamp papers , many times Registrations in British times , were done at higher rates than the negotiated rates ( opposite of today )''
Replied to Ashwani Kumar Aggarwal comment 6 years ago
Well Said Ashwani Kumar aggarwal. Without addressing grass root corruption avenues. Without Service promises to the citizens. All this is empowering bureaucrats. Which in turn will increase corruption. There are no checks and balances. Politicians pass their exams once in 5 years. Bureaucrats pass once in their life time and take the citizens for granted. And they keep abusing the system.
Pradeep Kumar M Sreedharan
Replied to Ashwani Kumar Aggarwal comment 6 years ago
And elections must be running ones, ie round the year, selectively distributed across areas, to eliminate campaigns.
Ashwani Kumar Aggarwal
6 years ago
Tax Terrorism would mean more of Inspector Raj , more bribes , more corruption and , ultimately , more Black Money.
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