Modi cabinet discusses income tax penalty on large deposits
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New Delhi: The Narendra Modi cabinet on Thursday night is believed to have discussed amending laws to levy close to 60% income tax on unaccounted deposits in banks above a threshold after the demonetisation of high-denomination currency notes.
The move comes amid banks reporting over Rs 21,000 crore being deposited in zero-balance Jan Dhan accounts in two weeks after the 500 and 1,000 rupee notes were banned, which authorities apprehend may be laundered black money. There was no official briefing on what transpired in the meeting that was called at short notice as Parliament is in session. Traditionally, there could no disclosures outside on any policy decision taken during the sitting of Parliament.
People familiar with the matter said the government was keen to tax all unaccounted money deposited in bank accounts, which was allowed for a 50-day window from November 10 to December 30. There have been various statements on behalf of the government ever since the demonetisation scheme was announced on November 8, which has led to fears of the taxman coming down heavily on suspicious deposits that could be black money being laundered.
Officials have even talked of a 30% plus 200 % penalty on top of possible prosecution in cases where black money holders took advantage of the 50-day window for depositing banned currency. People familiar with said the government plans to bring an amendment to the Income Tax Act during the current winter session of Parliament to levy a tax that will be higher than the 45 per cent tax and penalty charged on black money disclosed in the one- time Income Disclosure Scheme that ended on September 30.
As for those black money holders who did not utilise the window, they would be charged a higher rate which could be close to 60% that foreign black money holders had paid last year.
People familiar with the matter said the government is keen to root out benami deposits, particularly in Jan Dhan accounts. There was also talk of the government imposing a limit on domestic gold holding, but it is not clear if the proposal was discussed at the Cabinet meeting chaired by Prime Minister Narendra Modi tonight.
Modi’s November 8 shock ban on Rs500 and Rs1000 notes had swept away 86% of the currency in circulation in the biggest-ever crackdown on black money, corruption and counterfeit currency. The move had led to Rs14 lakh crore worth currency being withdrawn from circulation.
The Cabinet meeting, summoned at a very short notice, comes amid reports of the high tax penalty scaring people from putting their cash savings in the formal banking system. The people familiar with the matter said the government wants all of the Rs500 and Rs1,000 notes to be deposited and not burnt or destroyed for the fear of penal action.
The Income Tax Department had previously warned that cash deposits above Rs 2.5 lakh threshold after the demonetisation could attract tax plus a 200 % penalty in case of income mismatch. It was stated that the department was tracking all cash deposited during the period of November 10 to December 30, 2016, above a threshold of Rs 2.5 lakh in every account.
The people familiar with the matter added that the government may come out with a deposit scheme or an instrument like bond where the cash savings in the banned notes could be deposited.