Big cash deposits made in scrapped 500 and 1000 rupee notes that are declared to the Income Tax authorities are likely to attract a 50 per cent tax and there will be a fouryear bar on withdrawing half of the remaining money.
Amendments to the Income Tax Act were cleared by the Cabinet last night, to pave the way for the new law, which will be forwarded for the approval of Parliament in the current winter session, a senior official confirmed.
Half of the deposit which remains after paying the tax, which is 25 per cent of the original deposit, will not be allowed to be withdrawn from the bank for four years, the official said.
A higher 90 per cent tax and penalty is likely be imposed on those who do not declare the unaccounted cash voluntarily and are later found to be holding unaccounted money in their accounts by the tax authorities.
The tax rate is higher than the 45 per cent tax and penalty charged on undisclosed wealth declared through the one-time compliance window under the Income Disclosure Scheme (IDS) that ended on September 30. The logic being that since the black money holder did not utilise the government offer to declare his ill-gotten wealth, he should pay a higher rate of tax now and curbs placed.
While the tax authorities had talked of levying a peak rate of tax and 200 per cent penalty on top of it for any unexplained deposit above Rs 2.5 lakh during November 10 to December 30 period, it was felt that such a move may not have legal backing.
However, the government has decided to deal with deposits made during the 50-day window provided after the demonetizing of high-value notes as a separate category. The Cabinet is believed to have on Thursday approved amending the Income Tax Act by adding a clause in one of the sections to provide for the tax on an unexplained income during the window, sources said.
The government has taken a huge step in for demonetisation to uproot black money and corruption but its success will be determined by how much ill-gotten cash does not come back into the banking system.
A 60 per cent tax and penalty had been charged on disclosure of foreign black money scheme last year.
Sources said the government is keen to root out benami deposits, particularly in Jan Dhan accounts.
Government is also contemplating coming out with a bond in which the 25 per cent 'lock-in' money would be parked and can be withdrawn after 4-years by the depositor. Out of the additional taxes on unexplained and undisclosed deposits, government will create a fund to build rural infrastructure, a senior official said.
Prime Minister Narendra Modi's November 8 shock ban on highdenomination currency notes had swept away 86 per cent of the currency in circulation in the biggestever crackdown on black money, corruption and counterfeit currency.
The move had led to Rs 14 lakh crore worth currency being withdrawn from circulation. The Income Tax Department has already warned that it would 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 current expectations are that Rs 4 lakh crore of the old 500 and 1,000 rupee notes will end up being destroyed but the exact figure will emerge only after December 30 when the deadline for depositing these notes is over,'' a senior official said.
There has also been a sharp increase in cash deposits in zerobalance Jan Dhan accounts which have recorded a whopping Rs 21,000 crore flowing in during the first 13 days after demonetization.
The tax authorities have warned that stringent provisions of the Benami Property Transaction Act to deal with cases of misuse of bank accounts belonging to other people for laundering black money. The Act empowers the taxman to confiscate and prosecute both the depositor and the person whose illegal money has parked in the account.