To put a check the unbounded rise in corruption, fake currencies and undeclared hoarding of money, Prime Minister Narendra Modi has recently implemented a master stroke in the country. A sudden announcement of demonetization has startled the entire nation, evoking mixed reactions about his move. It was announced on November 8, 2016 that the currency notes of 500/- and 1000/- will henceforth cease to be legal tenders from midnight. Demonetization is an attempt to take down the status of currency notes as “legal tenders”.
The surge in attempt to convert black money to white, is basically trying to bring the cash into the economic system in partial amounts, so as to escape the suspicion of the Income tax department.
BUYING GOLD TO CONVERT BLACK MONEY TO WHITE
The night of the announcement of demonetization, saw a massive rush in the gold showrooms where thousands flocked to convert their tax-evaded income, more commonly termed “black money” to gold. It is possible to go to a jeweller and ask him for a cheque of the amount of money you would like to exchange. With a good personal rapport, the jeweller may even provide you a faux bill stating that you sold your jewellery to obtain an amount of money. False invoices are popular methods of laundering unexplainable sources of money. There were also several instances of gold selling with the help of backdated bills and on high premium.
Action taken by Government of India: Customer who is buying jewellery has to provide the PAN number. Action will be taken against those jewellers who fail to take PAN numbers from such buyers. The government is also asking all jewellery stores across the country to send in CCTV camera footage from the night of November 8 onwards.
TEMPLE DONATIONS AND DONATIONS TO POOR PEOPLE
Fearing an income tax raid, the hundreds of people hoarding black amount end up donating very large amounts of money to temples and religious places. Many take up the responsibility and expense of renovating exquisite places of worship. The donation is also provided to non-governmental charity organizations. Loans are provided to the people with financial constraints which includes activities such as sponsoring education of rural children, or organizing mid day meals. Such activities involve heavy expenses and therefore are a method of converting black money to white money.
Action taken by Government of India: Government Authorities requested to the temple trust for not accepting Rs 500 and 1,000 notes at cash counters or in Donation.
JAN DHAN ACCOUNTS AND UNEXPLAINED AMOUNTS OF MONEY BEING DEPOSITED IN BANKS
Many are misusing the Jan Dhan bank accounts, as a method of laundering ill-gotten wealth. Also, there are several cooperative banks, mostly in the rural regions of India where transactions are not computerized and physical account maintenance books are used. In such banks, there are instances of people trying to deposit illegitimate wealth by opening backdated fixed deposit accounts. They are even issuing demand drafts to people against cash, almost often without verifying identities. As per rule, all banks are allowed to take cash from customers and exchange with the new currency notes. The money against demand drafts and pay orders goes into a pool account. This in turn helps people who are hoarding unaccounted amounts of cash.
Action taken by Government of India: However, as per the strict guidelines, any deposits above 50,000 in the Jan Dhan accounts will come under scrutiny. The bank branches have also recently implemented the use of indelible ink marks for disbursement of cash.
There are also rising instances of people attempting to deposit very high amounts that do not have parity with their yearly income, and this becomes liable to confiscation, through increased tax rates.
PAYING OFF SALARIES IN ADVANCE
Many industrialists and employers have even attempted to pay off a bulk amount of salary, (for 6 months or a year) to relieve themselves of the burden of black money. The amount however is less than 2.5 lakhs, above which it will be come under the notice of Income tax department.
Action taken by Government of India: Government Authorties and IT department closely watching this type of activities and will take strong legal action against anyone caught along with imposing 200% penalty on the amount.
MAKING USE OF FARMERS AND POLITICAL PARTIES TO ESCAPE INCOME TAX SCRUTINY
Agricultural income is tax exempted; therefore a farmer can easily visit a bank to convert old currency notes. The farmers can claim that the undeclared cash that they own are the advances they received for their farm’s produce and sales.
Political parties can collect high amounts of donations without having to divulge details about the sources. There is no need to verify credentials such as PAN card details or any other detail at all.
They can get their cash donations converted to new currency notes without undergoing complicated verification procedures at the bank.
USING THE BANKNOTE MAFIA AND PROFESSIONAL MONEY LAUNDERING FIRMS
Banknote mafia is a term coined for people who are exploiting the poor people in order change their 500/- and 1000/- notes to smaller denominations. However, they deduct a percentage as commission. This is the profit that they will earn while converting the black money to white.
People are also making use of some professional money laundering firms, which are basically run chartered accountants to help in the process of tax exemption. These firms help in the process of laundering by investing them into businesses that entirely function on hard cash. Examples of such businesses are highway transport. They are in constant need of short term cash in hand and petty cash and are known to issue back dated valid proofs of transactions easily. There are cases of poor people being used as mules as well, targeting those standing in queues for hours. They are being asked to deposit large amounts up to 2.5 lakhs in their account. This will be later withdrawn after providing an amount to these poor people as commission fee.
Action taken by Government of India: Government Authorties requested to People of India to not accept such amount of money if some one asked to deposite their Black money into your account.The bank branches have also recently implemented the use of indelible ink marks for disbursement of cash.
BOOKING AND CANCELLING OF RAILWAY TICKETS
As per the announcements made by the Prime Minister, old currency notes were being accepted till the 14 November. There was a substantial rise in the ticket reservations, especially in the expensive air-conditioned train compartments. This was done with the intention to cancel these tickets later and receive a refund in new currency notes, after a cancellation fee was charged.
Action taken by Government of India: No refunds will be made by cash exceeding Rs.5,000. Refunds amount will be directly credited to bank accounts provided by the customers thus digitalizing the amount.
Although the harassment of standing in queues for very long time periods, is physically and mentally taking a toll on millions of Indian citizens, the Prime Minister assures that the steps are taken for the long term benefit of the country’s economy. There is a lot of cooperation from the banks being provided, such as wavering off taxes levied on multiple NEFT, IMPS bank transactions, and no extra fees on multiple ATM withdrawals.