Demonetization and Its Impact on Tax Collection and Formalization of the Economy (Download PDF)


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Reserve Bank has released its reports 2 times stating that demonetized Notes of Rs. 500 & Rs. 1000 are substantially deposited in Banks. Because most of currency came back into Banks, object of Demonetization has not succeeded.

Image of Demonetization and its impact on Tax collection

Image of Demonetization and Its Impact on Tax Collection

Image of Demonetization and its impact on Tax collection

  • Larger purpose of demonetization was to move INDIA from Tax Non-compliant society to compliant society.

  • This necessarily involved formalization of Economy & blow to black money.

What Has Depositing Money Achieved?

  • WHEN cash is deposited in Banks, anonymity about owner of cash disappears. Deposited cash is identified w/its owner giving rise to inquiry, whether amount deposited is in consonance w/depositor’s income. Post demonetization about 1.8 million depositors are identified for this enquiry. Many of them are being fastened w/Tax & Penalties. Mere deposit of cash in bank does not lead to presumption that it is Tax paid Money.

  • In March 2014, number of Income Tax returns filed was 3.8 crores. In 2017 - 18, this figure has grown to 6.86 cr. In last 2 years, when impact of demonetization & other steps is analysed, Income Tax returns have increased by 19% & 25%.

  • Number of New Returns filed post demonetization increased in past 2 years by 85.51 Lakhs & 1.07 cr.

  • For 2018 - 19, advance Tax in 1 quarter has increased for personal Income Tax Assesses by 44.1% & in Corporate Tax category by 17.4%.

  • Income Tax collections have increased from 2013 - 14 figure of `6.38 Lakh cr. to 2017 - 18 figure of `10.02 Lakh crores.

  • Growth of Income Tax collections in Pre-demonetization 2 years was 6.6% & 9%. Post-demonetization, collections increased by 15% & 18 % in next 2 years. Same trend is visible in 3rd year.

  • GST was implemented from 1st July, 2017 i. e. Post demonetization. In 1st year, number of registered assesses has increased by 72.5%. Original 66.17 Lakh assesses has increased to 114.17 Lakhs.

This is positive impact of Demonetization. More formalization of Economy, More Money in System, Higher Tax Revenue, Higher Expenditure, Higher Growth after 1st 2 quarters.

- Published/Last Modified on: October 2, 2018

Policy/Governance, Economy

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