On June 26, 2016, PM Narendra Modi provided an opportunity to black money holders to disclose their incomes under the Income Declaration Scheme (IDS) and be part of a transparent system. He also announced the government will neither ask the source of the untaxed wealth nor conduct any investigation on the matter.
Now, the government is going to give another chance to convert unaccounted money by introducing the Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana (PMGKY).
The value of the banned Rs 500 and Rs 1000 currency notes was 86% of the total money in circulation when demonetisation was announced on November 8. It amounts to over Rs 14 lakh crores. Out of this, between November 10 and 27, only Rs 8.45 lakh crore (including exchange of Rs 33,948 crore) has come back to the banks. That leaves a whopping sum of over Rs 5.55 lakh crore still hoarded. Where will it go?
One possibility is the remaining invalid notes may find the way to the banks somehow and become transparent, white money!
In the initial phase of demonetisation shock therapy, people burned crores of rupees (a Mumbai-based hawala operator reportedly burned old notes worth Rs 500 crores). Some persons slipped in old notes into temple hundis. Many others invented their own jugaad to convert banned notes. The result was unbelievably long, serpentine queues in front of banks.
Initially, under shock, despair and confusion, a lot of people privately exchanged old notes at whatever rates they could get. Some others hired unemployed people to stand in queues and exchange notes. And some enterprising jugaad masters even started illegal exchange rackets. All these privately exchanged money had to finally end up in the banks. So, the bank queues further stretched to miles, and new dubious means opened up.
Reportedly, a few bank officials were arrested recently while illegally exchanging old notes bending RBI guidelines. The rate of commission charged by them is 30%. That is only the tip of the iceberg. If a few were caught, how many more are not caught and, perhaps, still earning huge amounts of commission?
People also invented several new monetization channels. Some of these are Jan Dhan accounts, temple’s bank accounts, tapping cooperative banks, and many more such conversion routes. These, and more, were reported by newspapers and electronic channels.
There is a possibility of most of the hoarded money finding the way into banks before the deadline. Yet another possibility, as the government banks on, is that the money can be attracted by a new scheme.
And here is what’s on offer. The new chance, the Pradhan Mantri Garib Kalyan Yojana (PMGKY scheme) is a one-time scheme that will remain open only till December 30.
Those who want to use this chance have to pay tax, penalty and surcharge totaling 50% of the unaccounted money. The 50% is made up of income tax @ 30%, penalty @ 33% of tax (or 10% of declared amount) and PMGKY cess @ 10% of the declared amount.
They also will also have to deposit 25% of the disclosed sum in the PMGKY scheme fund at zero interest rate for a lock-in period of four years.
Those who miss this chance still can declare the hidden income by filing tax returns at the end of the financial year. But they will have to pay tax at a punitive rate of 60% and surcharge @ 25%, leaving only 25% with them. In some cases, an additional penalty can be levied at 10%. In case of misreporting or other irregularities, the levy of 50% can go up to 200%.
The aim is to use a part of tax dodgers’ money for the welfare of the poor, as the name of the scheme suggests.