Government Cracks The Whip On Black Money Holders

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Operation Clean Money: Phase II

The Government seems to be in no mood to show any signs of mercy when it comes to bringing the financial crooks to books as it launches the second phase of Operation Clean Money.

How It All Started?

On November 8 last year, Prime Minister Narendra Modi had announced the decision to scrap high-denomination currency notes of Rs 500 and Rs 1,000.

After announcing this largest economic reform this nation has ever witnessed since independence i.e. demonetization, the government bore the brunt of the opposition citing the inconvenience that the people had to bear while depositing 500 & 1000 rupees currency notes that they had back into the banks. But if there was one thing that seemed unshakable all through that while was the government’s determination in support of its decision for 500 & 1000 rupees note ban.

9 November 2016 to 28 February 2017: A Period of Searches, Surveys and Seizures

The post-demonetization period saw a rise in number of searches and surveys conducted by the tax department. More than 2,362 search, seizure and survey actions were conducted by the tax department during November 9 last year to February 28 this year, leading to seizure of valuables worth more than Rs 818 crore, which includes cash of Rs 622 crore and detection of undisclosed income of more than Rs 9,334 crore. Over 400 cases have been referred by the tax department to the Enforcement Directorate and the CBI. Surveys have been conducted in more than 3400 cases by assessment units.

Operation Clean Money Phase I

Post 31 December 2016 when the window of depositing the banned denomination notes was closed, the government on 31 January this year launched the first phase of “Operation Clean Money”. Under phase one, the Central Board of Direct Taxes (CBDT) sent communications to around 18 lakh individuals asking them to respond online to specific queries relating to cash deposits made during November 9-December 30, the time period given for deposit of scrapped currency notes in banks.

Out of the 17.92 lakh persons to whom the queries were sent by the tax department under the first phase of operation Clean Money, 9.46 lakh persons responded have responded to the department as per pre-defined parameters of sources of the cash deposits.

“Online queries were raised in 35000 cases and on-line verification was completed in more than 7800 cases. It has been decided to close the verification in cases where explanation of source of cash was found to be justified.

Operation Clean Money Phase II: A Big Catch Or Its Just The Beginning?

To take the first phase of Operation Clean Money forward, the government has launched the second phase of the same operation under which over 60,000 individuals, including 1,300 high-risk persons, will be under the scanner of the income tax department. The second phase will investigate into claims of excessive cash sales during the demonetization that did not match the previous profiles of the tax assessees.

As per a statement by the Central Board of Direct Taxes (CBDT):

“More than 60,000 persons, including 1,300 high-risk persons, have been identified for investigation into claims of excessive cash sales during the demonetization period. More than 6,000 transactions of high value property purchase and 6,600 cases of outward remittances shall be subjected to detailed investigations. All the cases where no response is received shall also be subjected to detailed enquiries”.

How Were The ‘High-Risk’ Persons Identified?

The tax department has identified the high risk persons through detailed investigations using:

  • Advanced data analytics, including integration of data sources
  • Relationship clustering
  • Fund tracking

What Do The High Risk Categories Identified Include?

As per the CBDT, the high-risk categories include:

  • Businesses claiming cash sales as the source of cash deposits that has been found to be in excess of their past profile or industry norms
  • Large cash deposits made by government or PSU employees
  • Persons who have undertaken high value purchases
  • Persons who have used shell entities for layering of funds and where no responses were received

The Government’s Offer To Come Clean: Pradhan Mantri Garib Kalyan Yojna (PMGKY)

The tax department had also launched a compliance window for assesees to come clean with their undisclosed cash and deposits made after demonetisation through the Pradhan Mantri Garib Kalyan Yojana (PMGKY). The three-month long PMGKY scheme received lukewarm response, with only Rs 2,300 crore flowing into government coffers as taxes and penalty by declarants in the scheme.

But nevertheless, it has been decided by the tax department that where the cash deposit has been declared under Pradhan Mantri Garib Kalyan Yojna (PMGKY), the verifications would also be closed.

Key Take Away:

Those who took advantage of the Pradhan Mantri Garib Kalyan Yojna (PMGKY) and came up clean are surely relaxed right now and those who didn’t are most likely about to hear the tax department’s footsteps anytime as the government is not ready to budge at all when it comes to the this extremely sensitive issue!