Demonetization on Black Money, Widening of Tax Base and Direct Tax Collections (Important) (Download PDF)

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Government cancelled the Legal Tender Status of Rs. 1000 and Rs. 500 denomination currency notes on 8th November 2016 with several objectives: Flushing out black money. Eliminate Fake Indian Currency Notes (FICN).

Image of History of Demonetization In India

Image of History of Demonetization In India

Image of History of Demonetization In India

  • Strike at the root of financing of terrorism and left wing extremism
  • Convert non-formal economy into a formal economy to expand tax base and employment
  • Give boost to digitalization of payments to make India a less cash economy.

Impact of demonetization can be understood in the following heads.

Impact on Black Money

Quantum jump in enforcement actions based on demonetization data:

Searches

  • 158 % increase in number of searches (from 447 to 1152 groups)
  • 106 % increase in seizures (from Rs. 712 crore to Rs. 1469 crore)
  • 38 % increase in admission of undisclosed income (from Rs. 11, 226 crore to Rs. 1, 54, 96 crore)

Surveys

  • 183 % increase in surveys (from 4422 to 12520)
  • 44 % increase in undisclosed income detected (from Rs. 9654 crore to Rs. 13920 crore)

Operation Clean Money

Operation Clean Money (OCM) launched on 31st January 2017 by Income Tax Department to analyse the data on large deposits of cash and returns not in sync with such deposits.

Phase 1

First phase of OCM identified 18 lakh suspects through data analytics with cash transactions not in line with tax profile

Online verification done in 4 weeks- Income tax department analyzed 9.72 lakh individuals and 13.33 lakh accounts with cash deposits of around Rs. 2.89 lakh crore in 3 - 4 weeks. Online queries were raised for more than 35000 cases and online verification completed for more than 7800 cases.

Phase 2

  • Enforced actions in high risk cases
  • Taxpayer engagement through a dedicated website in medium risk cases
  • Close monitoring in low risk cases.
  • The high, medium, and low risk cases identified through advanced data analytics, including integration of data sources, relationship clustering and fund tracking.
  • Exercise unearthed large number of individuals and clusters with suspect transactions including 14, 000 properties of more than Rs. 1 crore with no tax details.

Widening of Tax-Base

  • E-returns for 2017 increased to 2.79 crore from 2.22 crore (25.3%) showing marked increase in the voluntary compliance
  • Number of returns (electronic + paper) during the entire Financial Year 2016 - 17 was 5.43 crore- 17.3 % increase from FY 2015 - 16.
  • For FY 2016 - 17, 1.26 crore new taxpayers (return filers + non-filers making tax payments) added to the tax base

Impact on Direct Tax Collections:

  • Demonetization lead to growth in Direct Tax Collections- Advance Tax under Personal Income Tax had growth of about 41.79 % over the corresponding period in FY 2016 - 2017.
  • Self-Assessment Tax under Personal Income Tax had growth of 34.25 % over the corresponding period in FY 2016 - 2017.

Currency Statistics

  • The Reserve Bank of India (RBI) reported Rs. 15.28 lakh crore as deposited back on 30.6. 2017 in their Annual Accounts that Specified Bank Notes (SBNs) against Rs. 15.44 crore on 8th November, 2016.
  • Currency in circulation on 8th November, 2016 was 17.77 lakh crore versus 14.75 lakh crore on 4th August, 2017.
  • Significant portion of SBNs deposited represent unexplained money.

Impact on Companies and Shell Companies

  • Transactions of more than 3 lakh registered companies are under suspicion while one lakh companies were struck off the list- identified more than 37000 shell companies engaged in hiding black money and hawala transactions.
  • 163 companies listed on the exchanges suspended from trading, pending submission of proof documents.

Benami Transcations

The Income-tax Directorates of Investigation identified more than 400 benami transactions up to 23 May, 2017 with market value of properties under attachment more than Rs. 600 crore.

Impact on Terror Funding

  • Terrorist and naxalite financing stopped almost entirely.
  • No high quality FICN found or seized by intelligence operations, including at the Indo-Bangladesh Border since demonetisation.
  • Adversely affected the hawala operators and dabba trading venues.

Changing Habits

  • Demonetization changed of saving habits and formalized assets market.
  • Funds came into the organized financial markets from unproductive physical assets for example, equity mutual funds, life insurance premia and bank accounts.
  • Zero balance accounts under PMJDY declined from 76.81 % in September 2014 to 21.41 % in August 2017.

Impact on GST

  • Revenue collection under GST also partially attributable to demonetization drive- total revenue of GST remitted upto 29 August, 2017 Rs. 92, 283 crore with only 64.42 % of assesses having completed the payments.
  • Number of new taxpayers registered in GST upto 29th August 2017 is 18.83 lakhs.

Impact on Digitization

  • About 52.4 crore unique Aadhaar numbers linked to 73.62 crore accounts
  • Every month till August about 7 crore successful payments are made by the poor using their Aadhaar identification.
  • Direct transfer of Rs. 74, 000 crore is done to the financial accounts of 35 crore beneficiaries annually, at more than Rs. 6, 000 crore per month under DBT.
  • BHIM App and the Unified Payments Interface (UPI) help the poor become part of the digital mainstream.
  • Digital payments increased by 56 % from 71.27 crore transactions in October 2016 to 111.45 crore transaction till the end of May, 2017.

1 Billion-1 Billion-1 Billion Vision (Important)

1 billion unique Aadhaar numbers linked to 1 billion bank accounts and 1 billion mobile phones making India part of financial and digital mainstream.

- Published/Last Modified on: September 9, 2017

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