Thursday, 10 November 2016

Larger Picture of Modi’s Surgical Strike on Black Money

Introduction

This week has seen a number of measures taken by the Central Government to control the menace of black money and corruption. The main highlight of this change is the sudden and surprised withdrawal of the legal sanctity for Rs. 500 and Rs. 1000 as the currency for financial transactions. Though the Prime Minister Shri NarendraModi has pulled off a major coup of sorts against the black money, the foundation stones for this move have been laid in two years. In this course of time, he had given enough hints to the public about his intentions to curb the menace. However, he waited for the festive seasons to get over before making his drastic move. Hence, we should look at the larger picture to see what has happened on the night of November 9, 2016. This is what this blog post is going to do for the benefit of its readers.

prime minister on black money

Steps to Curtail the Black Money

The former Gujarat Chief Minister made it a point to include the fight against black money and corruption in the Bharatiya Janata Party (BJP) manifesto. He used this ploy as the poll plank to garner support for the saphron party in the General Election of 2014. He even claimed that he could deposit at least 20,000 rupees in the bank accounts of the Indian citizens if he became successful in totally curbing the scourge of black money and corruption. Has the PrimeMinister Shri Narendra Modi fulfilled his poll promise? We need to take stock of the full details before making any comments. If we take the bird’s eye view of the developments, it can easily be seen that he has taken a number of steps that lead to this unprecedented move.

steps to stop black money

  1.       SC-monitored SIT on Black Money: Immediately after coming to the power, the Indian Prime Minister constituted a Supreme Court-monitored Special Investigation Team (SIT) to probe into various sources of black money, including those parked in the tax havens.
  2.       Jan Dhan Yojana: After constituting the SIT on black money, Shri Narendra Modi had launched a unique scheme by the name Pradhan Mantri Jan Dhan Yojana (PMJDY) on August 28, 2014. Since he took special interest in the scheme, the mission was totally successful with 25.45 crore people getting bank accounts in their name till date. With the demonetization of Rs. 500 and Rs. 1000, the banking transactions are going to acquire importance. The new accounts will come handy in this scenario as their holders will not find the pinch of currency short fall.
  3.        Renegotiation of Tax Treaties and Information Exchange Agreements: With the aim of extracting information from tax haven, the Indian Government renegotiated the Double Tax Avoidance Agreement (DTAA) with Mauritius. This will enable the centre government to impose Capital Tax if the authorities located such Capital Asset in India. In the same spirit, the BJP-led National Democratic Alliance (NDA) government at the centre entered into an Automatic Information Exchange Agreement with Switzerland, another tax haven, to extract the information about money hoarders from India.
  4.        Black Money and Imposition of Tax Act: As part of this act, the Indian Government had launched a scheme to bring back the unaccounted money stashed in foreign countries and tax havens. Since this 2015 act had various stringent provisions for penalty and prosecution, many unaccounted money holders brought to the notice of the government their financial assets.
  5.        Income Disclosure Scheme: Under the aegis of the above mentioned act, the central government gave another chance for the black money hoarders to come clean in June, 2016.  By giving this opportunity, the government had forewarned that they would have to pay a penalty of 45% if black money was found in the future investigation by the Income Tax Department. However, this evoked only milder response with the total final disclosure coming to the tune of just Rs. 62,250 crore against the identified 90 lakh high-value transactions. Hence, the government was upset with the success of the scheme.
  6.       Penalty on Real Estate Transactions Above Rs. 20,000 in Cash: Withthe aim of curbing the illegal real estate transactions using black money, the central government imposed a penalty of 20% on all cash transactions above Rs. 20,000.
  7.      Tax Collection at Source for Transactions Above Rs. 2 Lakh: Indian Government also imposed Tax Collection at Source at a nominal rate of 1% on cash purchases over Rs. 2 lakh. The government did this to curtail the high-value cash transactions and create an audit trail to understand the source of money.
  8.       Benami Transactions Amendment Bill: With the aim of prohibiting the benami transactions happening the real estate field, the central government introduced the Benami Transactions (Prohibition) Amendment Bill in the Parliament and got it passed. This new move gives more teeth to the authorities to curb the benami transactions.

Thuruvananthapuram New Delhi, Delhi, India
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