I. Demonetisation of High Value
Currency Notes
Govt. of India announced on 8 th November
2016 that Legal tender character of High Denomination Currency notes of Rs.
1000 & Rs. 500 has been cancelled through a press release dated 8th
November 2016.Thereby, making the currency notes of Rs. 500 & 1000 useless unless deposited in a bank
account or exchanged with new currency notes.
II. Size & Volume of
Shadow Economy of which Fake currency notes are a major contributor:
As per the estimates of The World Bank in
July, 2010 the size of the shadow
economy for India was determined at
20.7% of the GDP in 1999 which has risen
to 23.2% in 2007. Shadow economy generates inflation, which adversely
affects the poor and the middle classes more than others. As a result,
Government is also deprived of its legitimate revenues, which could have been
otherwise used for public welfare and development activities.
III. New Currency Notes
Therefore to counter this menace of Fake
Indian Currency Notes, New Series bank notes of Rs.500/- and Rs.2,000/-
denominations will be introduced for circulation from 10th November, 2016. Introduction of new series of banknotes,
which will be distinctly different from the current ones in terms of look,
design, size and color has been planned & issued in market.
IV. Political Force
The
BJP Govt. has taken a no. of steps for curbing the menace of Black money in
India as compared to previous Governments. Some of the major steps taken by
current Govt in this direction are:
·
Implementing
the Income Declaration Scheme 2016.
·
Encouraging
the use of non-cash and digital payments.
·
Setting up
of a Special Investigation Team (SIT)
·
Enacting a
law regarding undisclosed foreign income and assets
·
Understanding
with Switzerland for getting information on Bank accounts held by Indians with
HSBC.
·
Amending the
Benami Transactions Act;
However, the top leadership of BJP somehow
felt that public was still not satisfied with their efforts to curb black money
as evident from the blunt offensive from opposition parties. Therefore, to win
the trust of people & remind them about the commitment of current Govt.
toward Black money, Policy for demonetisation of Rs. 500 & Rs. 1000 bank
notes has been introduced.
V. Major Highlights of Currency
Demonetization Policy
1.
Last Date for Currency Exchange: Old Rs. 1000/ 500 may be deposited or
exchanged on or before 30th December 2016.
2.
Maximum Limit on Currency Exchange for
A week per Person: However, Currency can be
exchanged for a maximum sum of Rs. 4000 which has been revised to Rs. 4500 at
any Bank Branch, any of the 19 Issue Offices of RBI & post offices &
such limit will be reviewed after 15 days i.e. after 25th November.
3.
No Maximum Limit for Deposits: There is no maximum limit on amount that can
be deposit in a bank account. However, only a maximum amount of Rs. 50,000 can
be deposited if KYC requirements of such
account are not complete.
4.
Specific Authorization: For depositing Old Rs. 1000/ Rs 500 notes in
bank account of a 3rd person, a letter from the depositee authorizing the depositor
to deposit old Rs. 1000/ Rs. 500 notes shall be produced before bank officials.
5.
Cash Withdrawl From Over
the Counter:
i. For Savings Bank
Account: Cash
withdrawal from over the counter is restricted to Rs. 24,000 for a week which
may be withdrawn either once or in installments.
ii. For Current Bank
Account: For Current bank accounts, cash
withdrawal limited to Rs. 50,000 per week.
6.
Deposit of Cash by persons who are not
present in the country: Any third
person can deposit cash on behalf of
such persons provided such third person is authorized in writing by the
depositee by following the standard banking procedures.
7.
Exchange Facilities for Arriving &
Departing Passengers at International Airports: In such
cases, exchange of old currency notes of Rs. 500/Rs.1000 is allowed subject to
a maximum limit of Rs.5000.
8.
Cash Deposit in Any Branch of Bank
with which depositee holds an account: Cash can be
deposited at any of the branch of bank with which depositee has an account.
9.
Cash deposit With a Bank with which
depositee does not hold any account: Cash can be
deposited with a bank with which depositee does not hold any Bank Account
subject to furnishing
valid identity proof and bank account details will be required for
electronic fund transfer .
VI. Penalty Provisions
for Deposit of Excess Cash than Declared in Income Tax Return.
Special
Provision in Finance Act, 2016: The Finance Act
2016 has replaced Section 271 (1) (c) of Income Tax Act,1961 with Section 270A
of Finance Act,1961 i.e. Penalty @ 200% for Underreporting & Misreporting
of Income for AY on or after 1st day of April,2017 & subsequent assessment
years.
Thus, keeping our discussion strictly limited to penalty under
currency demonetisation, Penalty @ 200% of underreported income shall be levied
if:
ITR
is Filed: Cash deposited in Bank account is not
proportionate with the cash or income declared in Income tax return.
ITR
is not Filed: Where Assessee could not explain the
amount of cash deposited by him/her in bank account & such amount exceeds
the basic exemption limit of Rs. 2,50,000.
In other words, following cases will attract penalty @ 200% u/s
270A for disproportionate cash deposited in Bank Account.
·
Failure to record Investments
in the books of accounts.
·
Claim of expenditure not
substantiated by any evidence.
·
Recording of false entry in the
books of Accounts.
·
Failure to record any receipt
having a bearing on total income.
VI. Conclusion:
Demonetization of High Value currency notes of Rs. 500/1000 is a
significant step towards curbing the menace of black money. This move has multiple benefits for the
country such as:
·
Destruction of Arms Funding
mechanisms for terrorists & separatist organisatons.
·
Incremental revenue for the
Government.
·
Move Purchasing power in the
hands of common man.
However, Demonetization scheme only focusses on the problem of
Black money hoarded in the form of cash. Black money that is hoarded in form of
Gold & other assets remains unaffected from this scheme. Assets other than
cash remains an area that need to be brought under scanner of taxman for
curbing the menace of Black Money.
Ineffective Monitoring
of Cash Exchange of Rs. 4,000: A person can exchange money
more than once in a fortnight since there is no centralized server for all the
banks. As a result, one person can exchange Rs. 4000 more than once in a
fortnight from different banks, which is used as a means to convert Black Money
on a very large scale.
Distortion of Objective
of Demonetization through Exemptions for Public Conveniences: Exemptions
to Chemists for cash deposits of high denomination notes
with banks has opened a window for Black Money holders to convert their cash
through chemists. Similarly, Donations to NGO's & Religious trusts should
be strictly scrutinized, as they are presenting an opportunity to the Black
Money holders to convert their black money by way of colluding with the
management of these installations in lieu of some consideration.
Open Offers for
Conversion of Cash: It has been
observed that many of Black Buck holders have started colluding with Small
shopkeepers, Auto rickshaw drivers & others who receive small denomination
currency for their daily work to exchange their High denomination currency
notes for small denomination notes in lieu of 20% or 40% commission for the
money exchanged.
Further, Marginalised sections of society like, daily wagers,
labourers etc. who do not have any reserves of money except cash for their
daily expense are facing harrassment in the form of long queues for exchange of
money, black marketing of small denomination currency notes & so on. These
people do not have any option but to opt for discounting of Rs. 500/1000
currency notes.
Payments In High
Denomination Notes Only: Further, Rich people with big hoards'
of High denomination currency notes are paying their employees only in Rs.
500/1000 currency notes, thereby forcing them to get exploited in the market
& face harassment.
In a nutshell, it can be said that Govt. does not have any
control over such alternate means of conversion of Black money & prima
facie, it appears to be another scheme that creates much louder noise than the
tangible benefits provided by it. In view of above observations, it is quiet
evident that Govt. does no have any plans to curb such alternate means of
conversion leading the purpose of entire Demonetization exercise futile.
Therefore, it needs to be thought whether, incremental gain from
such currency demonetisation is higher than the harassment 80% of population is facing. Government could
have prepared a better plan than to make people wait in long queues &
frustrated.
Contributed by : Tanveer Alam CA Finalist
