New Delhi: The income tax department is poised to embark on a massive data project to track those who laundered their money in the just-concluded demonetisation of high-value currencies.

The taxman’s big data moment involves matching the permanent account numbers (PAN) of depositors with information in various databases and isolating deposits with a common address, mobile number, email address, bank branch and business relationships.

The scrutiny will extend to joint owners of property, bank accounts or mutual funds, partners in a firm or directors and even employees in a company to check whether they acted in concert to evade taxes.

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Never before has the tax department attempted an exercise of this scale. If successful, the income tax department would not only have nabbed those who violated the law but also served a potent deterrent.

The tax department suspects tax evaders managed to legalize their unaccounted money using mules and proxies to make deposits, made high-value purchases using back-dated bills and colluded with bank officials to exchange old currency. It also suspects many companies used their employees to make cash deposits in their bank accounts.

A substantial portion of the Rs15.4 trillion of cancelled Rs500 and Rs1,000 notes is estimated to have returned to the banking system, belying initial expectations in government circles of a sum of some magnitude not returning.

But depositors weren’t just depositing cash; they were also providing data.

The tax department is now in possession of huge volumes of data from banks about cash deposits in various accounts.

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The tax department has identified 10.9 million accounts where deposits ranging from Rs2-80 lakh were made, with average deposit size being Rs5.03 lakh. And around 148,000 accounts received deposits of more than Rs80 lakh, with the average deposit size being Rs3.31 crore, according to figures given by the government in the finance bill.

Of these, the tax department has so far identified 1.8 million taxpayers, based on glaring mismatches in cash deposits and tax returns. It has sent them emails and messages seeking an explanation.

To assist it in the deep dive into the mass of data, the income tax department is in the process of engaging the services of data analytics providers to look for linkages in cash deposits.

The focus will be on grouping data based on any linkages or relationships. So, in the case of firms, the focus will be on the company’s directors, employees and addresses of all its offices. For individuals, the groupings will be based on common addresses, mobile numbers, email IDs and joint ownership of assets, bank accounts and investments.

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The analytics exercise will also collate data from various existing databases of the tax department—information about tax deducted at source, third-party reporting, tax payments and tax returns. Taxpayers will also be segmented on the basis of the type of tax return form used, nature of business and age of the individuals. “The tax department has received complaints from individuals who were forced to make such deposits by their employers. But data analytics will help us establish more connections," said a government official who asked not to be identified.

M.C. Joshi, former chairman of the Central Board of Direct Taxes, said data analytics would help the tax department sift through voluminous amounts of data and establish linkages that could establish tax evasion patterns but added that this could take time. “The tax department is likely to pursue only very large cash deposits to ensure it puts to good use its limited manpower."

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